Financial development, disaggregated oil shocks, and renewable energy consumption

Abstract

This study examines the influence of disaggregated oil shocks and varying levels of financial development on renewable energy consumption (REC). Utilizing both a panel model and a threshold model, we capture the linear and nonlinear dynamics of this relationship. The results of the panel model show that, in oil rich economies, REC remains largely unaffected by oil shocks, with past REC levels being the primary driver. In non-oil rich economies, the level of financial development has a positive and significant impact on renewable energy consumption. The results of the panel model for combined economies highlight the importance of financial development in reducing the effect of oil shocks on renewable energy consumption. The threshold model further reveals that economies react differently to oil shocks based on the level of financial development. This study offers valuable insights for policymakers seeking to strengthen financial development as a way to complement the adoption of renewable energy.