Financial Development, Environmental Policy Stringency, and Renewable Energy Innovation in Nigeria
Keywords:
Financial Development, Environmental Policy Stringency, Renewable Energy Innovation, ARDL, NigeriaAbstract
Harnessing renewable energy resources in order to achieve environmental sustainability is vital. The innovation of renewable energy provides solutions for energy transition and environmental degradation. Therefore, this paper aims at investigating how financial development and environmental policy stringency influence renewable energy innovation in Nigeria. This study covers the period of 2000–2025 based on annual time series data. Autoregressive Distributed Lag model (ARDL) approach was used to analyse the short-run and long-run relationship between renewable energy innovation with financial development and environmental policy stringency. Findings show that financial development has a negative and significant impact on renewable energy innovation in the long-run. This means that financial resources have not been fully allocated to activities that support green innovation in Nigeria. Environmental policy stringency significantly affects renewable energy innovation but its effect is weak which means that environmental regulation may not be properly enforced in Nigeria. Also, the interaction term is negative which means that environmental regulation does not complement financial development in Nigeria. However, in the short-run none of the variables were found statistically significant. Therefore, the study concludes that financial development and environmental policy does not jointly influence renewable energy innovation because of poor complementarity and weak institutional mechanisms. Hence, the study recommends government enforcements on green finance policy implementation and effective compliance with environmental regulation policies; also financial experts should endeavour to provide more funds for renewable energy innovation research and should improve on the coordination between financial and environmental bodies.
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