Does financial development support renewable energy or carbon emissions? A panel data analysis on emerging countries

Abstract

Copyright © 2023 Inderscience Enterprises Ltd.We investigate the effect of financial development on renewable energy supply rate and CO2 emissions in the period of 1997–2016. Domestic credit to the private sector, stock market traded value and foreign direct investment are proxies of financial development variables. Fixed and random effects models are estimated with the Parks Kmenta method for 19 emerging countries. According to empirical results, domestic credit to the private sector is statistically insignificant. Stock market development harms renewable energy supply. Unlike the first model, domestic credit to the private sector positively affects emissions. However, stock market development has no impact on emissions. Foreign direct investments reduce both the renewable energy supply rate and emissions. Foreign direct investments are one of the important financial elements of the emerging market countries by providing energy savings. Our findings provide a financial perspective to policymakers on renewable energy and low carbon in emerging countries.