Does economic, financial and institutional development matter for renewable energy consumption? Evidence from emerging economies

Abstract

As highly populous emerging economies begins to take the centre stage in the world economy; demand for energy is surging at an unprecedented rate. Traditionally used fossil fuels are non–renewable and their use often results in serious environmental pollution, as a result renewable energy is receiving more attention. During a stage of global energy infrastructure transition toward renewable energy, the influence of financial development and institutional quality in supporting new energy infrastructure cannot be ignored. Using data from 22 emerging markets countries' from 1990–2010, this paper demonstrates the positive impact of both financial development and institutional quality on renewable energy consumption. Notwithstanding the importance of income effects, the results imply that the positive impact of financial development/liberalisation upon renewable energy consumption should be complemented with improved institutional quality. Governments aiming to promote renewable energy infrastructure/consumption should develop policy to enable better coordination between financial development and institutional improvement targeted towards new energy projects.

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