The impact of financial development and economic growth on renewable energy consumption: Empirical analysis of India

• Published in: The Science of the total environment 2019-05, Vol.663, p.189-197
• Main Authors: Eren, Baris Memduh, Taspinar, Nigar, Gokmenoglu, Korhan K.
• Format: Article
• Language: English
• Subjects: Causality; Economic growth; Financial development; Renewable energy
• ISSN: 0048-9697; 1879-1026
• DOI: 10.1016/j.scitotenv.2019.01.323

This current study investigates the impact of financial development and economic growth on renewable energy consumption in India. Annual time series data is used to cover the period 1971–2015. A long-run equilibrium relationship is confirmed among the variables of financial development, renewable energy consumption and economic growth by the Maki (2012) cointegration test under five structural breaks in the series. Dynamic ordinary least squares (DOLS) estimation results suggest statistically significant and positive impacts of economic growth and financial development on renewable energy consumption for the case of India. Moreover, the study applied the Granger causality test under a vector error correction model to estimate the existence and direction of causality between variables. The causality test results suggest that renewable energy consumption and economic growth are financial development driven in the long run and there is a bidirectional causality between renewable energy consumption and economic growth in India. [Display omitted] •Financial development and economic growth contribute to renewable energy usage.•Significant structural breaks are observed in renewable energy-growth nexus.•Bidirectional causality exists between renewable energy usage and economic growth.•A unidirectional causality runs from financial development to renewable energy.