Driving Factors of Growth of Renewable Energy Consumption in Dynamic Panel Data setup.

What is it about?

The findings highlight that financial development, GDP per capita, trade, FDI, and CO₂ emissions generally promote renewable energy use, while inflation hinders it. However, the impact of these drivers differs across countries depending on their financial maturity and income level. The study reveals that financial development supports REC only when both financial institutions and markets grow together, stressing the need for balanced financial sector progress. Additionally, synergy among financial development, trade, and FDI enhances REC growth. The study concludes by recommending targeted, context-specific policies that strengthen financial systems, promote green investment, and align economic and environmental goals to support the Sustainable Development Goals (SDGs).

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Why is it important?

The study makes a substantial contribution to the empirical literature on the determinants of renewable energy consumption (REC) by employing a comprehensive cross-country dataset covering 93 economies from 1990 to 2020 and applying a two-step System-GMM estimation technique to address endogeneity and dynamic effects. Its consideration of regional heterogeneity and varying levels of financial development provides a nuanced understanding of the finance–energy–growth nexus, challenging the assumption that economic and financial expansion uniformly fosters renewable energy adoption. The identification of synergistic interactions between financial institutions, financial markets, foreign direct investment, and trade as key transmission mechanisms represents a notable theoretical advancement, emphasizing the importance of coordinated policy frameworks. However, the study is constrained by several methodological and conceptual limitations. The potential for measurement inconsistencies across countries, the omission of institutional and technological factors, and the possibility of reverse causality may weaken the robustness of the findings. Furthermore, the aggregation of countries by income or financial development level may obscure intra-group variations that could yield different policy implications. Despite these limitations, the research is methodologically rigorous and highly policy-relevant, offering valuable insights into how financial and economic structures can be leveraged to accelerate the global transition toward renewable energy, while also underscoring the need for future research integrating institutional and qualitative dimensions to capture the complexity of these dynamics.

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