The relationship between financial development and renewable energy consumption in South Asian countries

We analyse how financial development and renewable energy consumption are linked in the selected countries of South Asia using data covering from 1990 to 2018. On the indication of cross-sectional dependency among the variables of the models, we apply second-generation panel unit root tests and cointegration tests to check stationarity properties and long-run cointegrating relationships. We find that variables are stationary at the first difference, and long-run cointegration exists. By applying robust heterogeneous and cross-section augmented dynamic estimators, we find that growth in GDP increases renewable energy consumption by about 0.50–1.56%; however, it reduces by 0.01–0.03% after particular thresholds. Furthermore, on average, an increase in financial development reduces the propensity of renewable energy consumption by 0.07–0.15% in the long-run. On the other hand, panel causality results show unidirectional relationships from GDP to financial development and from financial development to renewable energy consumption but not vice versa. We suggest that the selected countries revisit and restructure the renewable energy policy and focus on institutional reforms to strengthen renewable energy development in the upcoming years.