Linkages between renewable energy, financial development, and environmental sustainability in Asian countries

Abstract

Financial development and green technologies are imperative to accomplish sustainable development goals in developed and developing economies. Therefore, this study examines the dynamic influence of renewable energy consumption, financial development, and green technology innovations on carbon dioxide emissions using selected Asian countries’ data from 1990 to 2019. It applies the Cross-Sectional Augmented Distributed Lag model to address the slope heterogeneity and the cross-sectional dependency issues in our panel. The long-run results revealed that financial development increases carbon emissions while green innovation and renewable energy consumption reduce emissions. Nevertheless, the emissions mitigating effects of both variables significantly varied, and green innovation possesses a more substantial impact on emissions reduction. The short-run results also produce similar outcomes; however, their coefficient’s magnitude is relatively lower. Moreover, the error correction term is significantly negative, suggesting a 25% speed of adjustment in case of any deviation from steady-state equilibrium. These results suggest integrating renewable energy and green technology innovation into the financial sector to neutralise its negative consequences.