Renewable Energy, Urbanization, Financial Development and Environmental Degradation in the ASEAN Countries

Abstract

The ASEAN countries have increasingly become a new economic force in the global economy. Economic growth and development have significantly improved living standards. However, environmental degradation in the region has been significantly deteriorating. This study examines the long-term effects of renewable energy consumption, urbanization and financial development on environmental degradation in ASEAN countries from 1995 to 2020. Various econometric techniques are used, including the fully modified OLS, dynamic OLS, canonical cointegration regression and Ganger’s causality relationship. The empirical results indicate that increased renewable energy consumption and extended urbanization reduce environmental degradation. However, economic growth and financial development lead to increased environmental degradation. Granger’s causality relationship analysis confirms a bidirectional linkage between renewable energy consumption and urbanization, urbanization and financial development, and urbanization and environmental degradation. Financial development and urbanization also have a bidirectional causality relationship with economic growth. Finally, the results confirm a unilateral causality relationship between environmental degradation financial development and urbanization. The governments of the ASEAN countries will need to consider the significant roles of renewable energy usage and urbanization in their policies in achieving sustainable economic growth and development and improving environmental quality.