Impact of Financial Development on Energy Consumption in Middle Income Countries
Keywords:
Financial Development; Energy Usage; Middle Income Countries; Panel dataAbstract
The study investigated the impact of financial development on energy consumption in middle income countries using panel data (2001-2016) within the dynamic generalized methods of moments (GMM) econometric estimation technique. Unlike previous similar research work that suffers from omitted variable bias, this study introduced a third variable, known as trade openness. Apart from model 5, all the other four models produced results which show that financial development had a significant positive effect on energy consumption in middle income countries. These results are to a very large extent supported by literature. The study therefore urges middle income countries to implement policies that ensures that financial development plays a critical role in developing clean and efficient energy usage machinery and equipment. Except for model 5, the study also noted that the complementarity between financial development and trade openness had a significant positive impact on energy consumption in models 1, 2, 3 and 4. In other words, trade openness was found to be a channel through financial development increased its positive influence on energy consumption in middle income countries. The study therefore urges middle income countries to import machinery and equipment that are energy consumption saving and efficient in order to complement financial sector’s effort to contribute towards development of clean energy and energy efficient technology. Further research must investigate other channels that shapes financial development’s influence on energy consumption not only in middle income countries but in other economic groupings as well.
References
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27. Samuel, Y.A. Manu, O. and Wereko, T.B. (2013). Determinants of energy consumption: A review, International Journal of Management Sciences, 1 (12), 482-487
28. Sekantsi, L.P. and Timuno, S. (2017). Electricity consumption in Botswana: The role of financial sector development, industrialization and urbanization, Review of Economic and Business Studies, 10 (1), 75-102.
29. Shahbaz, M. Nasreen, S. Ling, C.H. and Sbia, R. (2014). Causality between trade openness and energy consumption: What causes what in high, middle- and low-income countries, Energy Policy, 70 (July), 126-143.
30. Sharma, A. and Bruce, C. (2013). The relationship between energy and U.S. GDP: A multivariate Vector Error Correction Model, Journal of Energy and Development, 38 (1), 1-17.
31. Shi, S. and Deng, J. (2020). Impacts of financial development on energy consumption structure: New evidence from panel threshold regression model, International Journal of Sustainable Development and Planning, 15 (3), 353-359.
32. Tang, C.F. (2009), Electricity consumption, income, foreign direct investment and population in Malaysia: New evidence from multivariate framework analysis, ‘Journal of Economic Studies’, 36 (4), 371-382.
33. Tembo, J. (2018). Regional financial integration and its impact on financial sector development: The case of Southern Africa, Unpublished Doctoral Thesis, University of South Africa.
34. Tsaurai, K. (2018). Complementarity between foreign aid and financial development as a driver of economic growth in selected emerging markets. Comparative Economic Research. Central and Eastern Europe, 21 (4), 45-61.
35. Tsaurai, K. (2020). Financial development-poverty reduction nexus in BRICS: A panel data analysis approach. Applied Econometrics and International Development, 20 (2), 19-32.
36. Xu, S.J. (2020). The impact of financial development on energy consumption in China: Based on SYS GMM estimation, Advanced Materials Research, 2977-2981.
37. Yessengali, O. and Murat, I. (2018). The impact of financial development on energy demand in transitional economies. Global Economy Journal, 18 (3),
2. Abosedra, S. Shahbaz, M. and Sbia, R. (2015), The links between energy consumption, financial development and economic growth in Lebanon: Evidence from co-integration with unknown structural breaks, ‘Journal of Energy’, (2015), https://doi.org/10.1155/2015/965825
1. Aye, G.C. and Edoja, P.E. (2017). Effect of economic growth on CO2 emission in developing countries: Evidence from a dynamic panel threshold regression model. General and Applied Economics, https://doi.org/10.1080/23322039.2017.1379239
2. Coban, S. and Topcu, M. (2013), The nexus between financial development and energy consumption in the EU: A dynamic panel data analysis, ‘Energy Economics’, 39 (September), 81-88.
3. Doytch, N. and Narayan, S. (2016). Does FDI influence renewable energy consumption? An analysis of sectoral FDI impact on renewable and non-renewable industrial energy consumption, Energy Economics, 54 (February), 291-301.
4. Dumrul, Y. (2018). Estimating the impact of financial development on energy consumption: A co-integration analysis. International Journal of Energy Economics and Policy, 8 (5), 294-299.
5. Eren, B.M. Taspinar, N. and Gokmenoglu, K.K. (2019). The impact of financial development and economic growth on renewable energy consumption: Empirical analysis of India. The Science of the Total Environment, 66 (3), 189-197.
6. Ghorashi, N. and Rad, A.A. (2018). impact of financial development on CO2 emissions: Panel data evidence from Iran’s economic sectors. Journal of Community Health Research, 7 (2), 127-133.
7. Huang, B.N. Hwang, M.J. and Yang, C.W. (2008). Causal relationship between energy consumption and GDP growth revisited: A dynamic panel data approach, Ecological Economics, 6(7), 41-54.
8. Ibrahim, O. Bukonla, O. and Jamiu, T.O. (2016). Financial development and energy consumption nexus in Nigeria, Acta Universitatis Danubius. OEconomica, 12 (5), 155-165.
9. Im, K.S. Pesaran, M.H. and Shin, Y. (2003). Testing unit roots in heterogeneous panels. Journal of Econometrics, 115 (1), 53-74.
10. Kahia, M. Kadria, M. and Aissa, M.S.B. (2016). What impacts of renewable energy consumption on CO2 emissions and financial development? A panel data vector autoregressive (PVAR) approach. Published in 2016, 7th International Renewable Energy Congress.
11. Kao, C. (1999). Spurious regression and residual-based tests for co-integration in panel data. Journal of Econometrics, 90 (1999), 247-259.
12. Kassi, D.F. (2020). Dynamics between financial development, renewable energy consumption and economic growth: Some international evidence. Unpublished Doctoral Thesis in Finance, University of Dongbei.
13. Khan, S. Khan, M.K. and Muhammad, B. (2020). Impact of financial development and energy consumption on environmental degradation in 184 countries using a dynamic panel model. Environmental Science and Pollution, 21-45.
14. Levin, A. Lin, C.F. and Chu, C.S.J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108, (1), 1-24.
15. Liddle, B. (2004). Demographic dynamics and per capita environmental impact: Using panel regressions and household decompositions to examine population and transport, Population Environment Journal, 26 (1), 23-29.
16. Liu, Y. Zhou, Y. and Wu, W. (2015). Assessing the impact of population, income and technology on energy consumption and industrial pollutant emissions in China, Applied Energy, 155 (October), 904-917.
17. Mahalik, M.K. and Mallick, H. (2014). Energy consumption, economic growth and financial development: Exploring the empirical linkages for India. The Journal of Developing Areas, 48, (4), 139-159.
18. Matheus, K. (2018). The positive impact of trade openness on consumption of energy: Fresh evidence from Andean community countries, Energy, Elsevier, 158(1), 936-943.
19. Mukhtarov, S. Mikayilov, J and Mammadov, J. and Mammadov, E. (2018). The impact of financial development on energy consumption: Evidence from an oil-rich economy. Energies, 11(6), 1-14.
20. Nindi, A.G. and Odhiambo, N.M. (2014). Energy consumption and economic growth in Mozambique: An empirical investigation, Environmental Economics, 5 (4), 82-92.
21. Nkalu, C.N. Ugwu, S.C. and Osogwa, F.O. (2020). Financial development and energy consumption in Sub-Saharan Africa: Evidence from panel vector error correction model. 77/2158244020935432 SAGE Open July-September 2020: 1–12 © The Author(s) 2020 DOI: 10.1177/2158244020935432
22. Ouedraogo, N.S. (2013). Energy consumption and economic growth: Evidence from the Economic Community of West African States (ECOWAS), Energy Economics, 36 (March), 637-647.
23. Pramahesti, K. and Hartono, D. (2020). Energy, economic growth and financial development in ASEAN+3, Signifikan: Jurnal Ilmu Ekonomi, 9 (1), 137-152.
24. Reddy, A.K.N. Anand, Y.P. and D’Sa, A. (2001). Energy for a sustainable road/rail transport system in India, Energy for Sustainable Development, 4 (1), 29-44.
25. Sadorsky, P. (2010). The impact of financial development on energy consumption in emerging economies, Energy Policy, 38 (5), 2528-2535.
26. Salman, D.M. and Atya, E.M. (2014). What is the role of financial development and energy consumption on economic growth: New evidence from North African countries, International Journal of Finance and Banking Studies, 3 (1), 137-149.
27. Samuel, Y.A. Manu, O. and Wereko, T.B. (2013). Determinants of energy consumption: A review, International Journal of Management Sciences, 1 (12), 482-487
28. Sekantsi, L.P. and Timuno, S. (2017). Electricity consumption in Botswana: The role of financial sector development, industrialization and urbanization, Review of Economic and Business Studies, 10 (1), 75-102.
29. Shahbaz, M. Nasreen, S. Ling, C.H. and Sbia, R. (2014). Causality between trade openness and energy consumption: What causes what in high, middle- and low-income countries, Energy Policy, 70 (July), 126-143.
30. Sharma, A. and Bruce, C. (2013). The relationship between energy and U.S. GDP: A multivariate Vector Error Correction Model, Journal of Energy and Development, 38 (1), 1-17.
31. Shi, S. and Deng, J. (2020). Impacts of financial development on energy consumption structure: New evidence from panel threshold regression model, International Journal of Sustainable Development and Planning, 15 (3), 353-359.
32. Tang, C.F. (2009), Electricity consumption, income, foreign direct investment and population in Malaysia: New evidence from multivariate framework analysis, ‘Journal of Economic Studies’, 36 (4), 371-382.
33. Tembo, J. (2018). Regional financial integration and its impact on financial sector development: The case of Southern Africa, Unpublished Doctoral Thesis, University of South Africa.
34. Tsaurai, K. (2018). Complementarity between foreign aid and financial development as a driver of economic growth in selected emerging markets. Comparative Economic Research. Central and Eastern Europe, 21 (4), 45-61.
35. Tsaurai, K. (2020). Financial development-poverty reduction nexus in BRICS: A panel data analysis approach. Applied Econometrics and International Development, 20 (2), 19-32.
36. Xu, S.J. (2020). The impact of financial development on energy consumption in China: Based on SYS GMM estimation, Advanced Materials Research, 2977-2981.
37. Yessengali, O. and Murat, I. (2018). The impact of financial development on energy demand in transitional economies. Global Economy Journal, 18 (3),
Published
2021-05-07
How to Cite
Tsaurai, K. (2021). Impact of Financial Development on Energy Consumption in Middle Income Countries: Array. EuroEconomica, 40(1). Retrieved from https://dj.univ-danubius.ro/index.php/EE/article/view/836
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