The Influence of Domestic Bank Credit and FDI Inflows on Renewable Energy Productivity: An Analysis of Developing Asian Economies

Abstract

As economies worldwide endeavour to achieve Sustainable Development Goals (SDG) by 2030, the urge to shift toward renewable energy and achieve energy usage effectiveness has grown more vital. This transition highlights the need to comprehend financial mechanisms and governance aspects that can foster the productivity of renewable energy sources. In this light, this study evaluates the dynamics between domestic bank credit and foreign direct investment inflows, effective governance, world uncertainty, and their aggregate influence on renewable energy productivity in developing Asia, providing a novel outlook on environment-friendly energy. In this context, we analyse the prospects of domestic bank credit and foreign direct investment inflows to serve reliable and affordable sustainable energy for all (i.e. SDG7). Additionally, we have incorporated labour force participation, capital formation, and non-renewable energy consumption as control variables, recognizing their role in renewable energy productivity function. We have employed two-steps dynamic Generalized Method of Moments (GMMs) and Panel-corrected Standard Errors (PCSEs) estimation techniques for the panel set of 23 developing Asian economies from 1996 to 2020. The findings discern domestic bank credit as a crucial promoter of renewable energy productivity, spotlighting the nuanced role of foreign direct investment inflows and the unfavourable impact of world uncertainty. Effective governance is asserted as a stimulus of renewable energy productivity, accentuating the indispensable need for consistent, clear, rigorous environmental policies. Furthermore, the analysis shows that the labour force, capital formation, and non-renewable energy enhance renewable energy productivity. This brief examination intensely analyses renewable energy, prioritising the importance of bolstering renewable energy productivity for attaining sustainable development goals and requiring policymakers in developing Asia to inquire further.