The impact of oil prices, financial development and economic growth on renewable energy use

Abstract

Purpose The purpose of this study is to verify all factors that promote renewable energy (RE) consumption. Past studies have shown that financial development (FD) and economic growth (EG) are the major drivers toward RE development, while oil prices had mixed outcomes in different regions by different studies. Design/methodology/approach Global warming effects have been the major reason of the transition by nations from fossil fuel use to RE sources that are considered as friendly to the environment. This research uses the fixed effects and random effects techniques, to ascertain the factors which impact RE development. The generalized linear model is also used to check the robustness of the Fixed Effects and Random Effects models’ results, while the Kao, Pedroni and Westerlund tests are used to check cointegration in the specified model. Findings The major findings of this study show the importance of EG and FD in promoting RE development. Oil prices, inflation rate and public sector credit present a negative effect on RE development, while foreign direct investment does not significantly impact RE development. Practical implications This research recommends the use of FD in promoting RE sources, as well as the stabilization of oil prices and consumer prices. Originality/value This research is important because it specifies the three proxies of FD, together with foreign direct investment inflation rate, EG and oil prices, in modeling RE. By investigating the impact of oil prices on RE in the emerging seven economies, this research becomes one of the few studies done in this region, as per the authors’ knowhow.