Investigating the Role of Financial Development in Encouraging the Transition to Renewable Energy: A Fractional Response Model Approach

Abstract

This paper aims to investigate the relationship between financial development and renewable energy consumption using a fractional response model. The study examines a sample of 34 advanced economies and 64 emerging markets and developing economies from 2008 to 2020. The findings from the fractional response model indicate that financial development has a positive impact on renewable energy consumption in advanced economies. However, in emerging and developing economies, financial development negatively affects the consumption of renewable energy. Additionally, the findings illustrate that financial development has a more pronounced positive impact in advanced economies. This effect is especially strong in countries with higher levels of financial development. On the other hand, in emerging and developing economies, the consumption of renewable energy is more strongly affected by the negative impact of financial development on countries with lower financial development.