Effects of financial development, foreign direct investment, and economic growth on renewable energy consumption: Evidence from Czechia

Abstract

This study examines the effects of financial development, foreign direct investments (FDI), and economic growth on renewable energy consumption in Czechia. ARDL analysis was applied using data from the 1993-2023 period. Thus, we attempted to determine whether the short- and long-term effects of variables on renewable energy consumption differ. According to the analysis results, financial development decreases short-term renewable energy consumption and increases long-term renewable energy consumption. In the long term, economic growth also increases renewable energy consumption. Although the long-term effect of FDI on renewable energy consumption is positive, it is statistically insignificant. The model’s error correction mechanism works, and approximately 47% of the deviations occurring in the short term are balanced in the next period. Czechia’s emphasis on increasing financial development may help increase renewable energy consumption in the long term.

Keywords

• Financial development
• Foreign direct investment
• Renewable energy consumption
• ARDL

References

1. [1] Akpanke TA, Deka A, Ozdeser H, Seraj M. Does foreign direct investment promote renewable energy use? An insight from West African countries. Renewable Energy Focus 2023; 44: 124-131.
2. [2] Alsagr N, Van Hemmen S. The impact of financial development and geopolitical risk on renewable energy consumption: Evidence from emerging markets. Environmental Science and Pollution Research 2021; 28: 25906-25919.
3. [3] Amuakwa-Mensah F, Nasström E. Role of banking sector performance in renewable energy consumption. Applied Energy 2022; 306: 118023.
4. [4] Anton SG, Nucu AEA. The effect of financial development on renewable energy consumption. A panel data approach. Renewable Energy 2020; 147: 330-338.
5. [5] Chang L, Qian C, Dilanchiev A. Nexus between financial development and renewable energy: Empirical evidence from nonlinear autoregression distributed lag. Renewable Energy 2022; 193: 475-483.
6. [6] Dickey DA, Fuller WA. Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association 1979; 74: 427–431
7. [7] Eren BM, Taspinar N, Gokmenoglu KK. The impact of financial development and economic growth on renewable energy consumption: Empirical analysis of India. Science of the Total Environment 2019; 663: 189-197.
8. [8] Fan W, Hao Y. An empirical research on the relationship amongst renewable energy consumption, economic growth and foreign direct investment in China. Renewable Energy 2020; 146: 598-609.

9. [9] Farooq F, Faheem M, Nousheen A. Economic policy uncertainty, renewable energy consumption and environmental sustainability in China. Pakistan Journal of Humanities and Social Sciences 2023; 11(2): 1926-1938.
10. [10] Habiba U, Xinbang C. The contribution of different aspects of financial development to renewable energy consumption in E7 countries: The transition to a sustainable future. Renewable Energy 2023; 203: 703-714.
11. [11] Habiba U, Xinbang C, Ahmad RI. The influence of stock market and financial institution development on carbon emissions with the importance of renewable energy consumption and foreign direct investment in G20 countries. Environmental Science and Pollution Research 2021; 28: 67677-67688.
12. [12] Hondroyiannis G, Lolos S, Papapetrou E. Energy consumption and economic growth: assessing the evidence from Greece. Energy Economics 2002; 24(4): 319-336.
13. [13] Islam S, Raihan A, Ridwan M, Rahman MS, Paul A, Karmakar S, ... Al Jubayed A. The influences of financial development, economic growth, energy price, and foreign direct investment on renewable energy consumption in the BRICS. Journal of Environmental and Energy Economics 2023; 2(2): 17-28.
14. [14] Kang X, Khan FU, Ullah R, Arif M, Rehman SU, Ullah F. Does foreign direct investment influence renewable energy consumption? Empirical evidence from south Asian countries. Energies 2021; 14(12): 3470.
15. [15] Kor S, Qamruzzaman M. Nexus between FDI, financial development, capital formation and renewable energy consumption: Evidence from Bangladesh. International Journal of Energy Economics and Policy 2023; 13(6): 129-145.
16. [16] Menegaki AN. The ARDL method in the energy-growth nexus field; best implementation strategies. Economies 2019; 7(4): 105.
17. [17] Mukhtarov S, Humbatova S, Hajiyev NGO, Aliyev S. The financial development-renewable energy consumption nexus in the case of Azerbaijan. Energies 2020; 13(23): 6265.
18. [18] Mukhtarov S, Yüksel S, Dinçer H. The impact of financial development on renewable energy consumption: Evidence from Turkey. Renewable Energy 2022; 187: 169-176.
19. [19] Nawaz A, Rahman MM. Renewable energy consumption in Sub-Saharan Africa: The role of human capital, foreign direct investment, financial development, and institutional quality. Energy Reports 2023; 10: 3383-3393.
20. [20] Nkoro E,Uko AK. Autoregressive Distributed Lag (ARDL) cointegration technique: Application and interpretation. Journal of Statistical and Econometric Methods 2016; 5(4): 63-91.
21. [21] Nor BA, Hassan Mohamud I. Assessing the influence of foreign direct investment on renewable energy consumption in Somalia: An ARDL model analysis. International Journal of Sustainable Energy 2024; 43(1): 2422899.
22. [22] Our World in Data, https://ourworldindata.org/, 2024.
23. [23] Pechancová V, Pavelková D, Saha P. Community renewable energy in the Czech Republic: Value proposition perspective. Frontiers in Energy Research 2022; 10, 821706.
24. [24] Pesaran MH, Shin Y, Smith RJ. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics 2001; 16: 289-326.
25. [25] Phillips PCB, Perron P. Testing for a unit root in time series regression. Biometrica 1988; 75: 335–346.
26. [26] Pinn SLS, Ching KS, Kogid M, Mulok D, Mansur K, Loganathan N. Empirical analysis of employment and foreign direct investment in Malaysia: An ARDL bounds testing approach to cointegration. Advances in Management and Applied Economics 2011; 1(3): 77-91.
27. [27] Qamruzzaman M. Nexus between foreign direct investment, gross capital formation, financial development and renewable energy consumption: evidence from panel data estimation. GSC Advanced Research and Reviews 2024; 18(1): 182-200.
28. [28] Recka L, Maca V, Scasny M. Green deal and carbon neutrality assessment of Czechia. Energies 2023; 16(5), 2152.
29. [29] Rej S, Bandyopadhyay A, Das N, Hossain ME, Islam MS, Bera P, Yeediballi T. The asymmetric influence of environmental-related technological innovation on climate change mitigation: What role do FDI and renewable energy play? Environmental Science and Pollution Research 2023; 30(6): 14916-14931.
30. [30] Sadiq M, Ou JP, Duong KD, Van L, Xuan Bui T. The influence of economic factors on the sustainable energy consumption: evidence from China. Economic Research-Ekonomska Istraživanja 2023; 36(1): 1751-1773.
31. [31] Sadorsky P. Financial development and energy consumption in central and eastern european frontier economies. Energy Policy 2011; 39(2): 999-1006.
32. [32] Sahin BS, Yilmazer S. The relationship between financial development and renewable energy consumption: An empirical investigation on emerging countries. International Journal of Sustainable Economy 2021; 13(4): 336-356.
33. [33] Samour A, Baskaya MM, Tursoy T. The impact of financial development and FDI on renewable energy in the UAE: A path towards sustainable development. Sustainability 2022; 14(3): 1208.
34. [34] Selvefors A, Karlsson IM, Rahe U. Conflicts in everyday life: The influence of competing goals on domestic energy conservation. Sustainability 2015; 7(5): 5963-5980.
35. [35] Shahbaz M, Sinha A, Raghutla C, Vo XV. Decomposing scale and technique effects of financial development and foreign direct investment on renewable energy consumption. Energy 2022; 238: 121758.
36. [36] Shahzadi HN, Ali M, Ghafoor RK, Rahman SU. Does innovation and foreign direct investment affect renewable energy consumption? Evidence from developing countries. Pakistan Journal of Humanities and Social Sciences 2023; 11(2): 908-916.
37. [37] Shuaibu M, Muhammad HM, Abdullahi SI, Gwazawa UG. Impact of public debt on inflation and unemployment in Nigeria: An ARDL vector error correction model. Noble International Journal of Economics and Financial Research 2021; 6(5): 91-98.
38. [38] Sun Z, Zhang X, Gao Y. The impact of financial development on renewable energy consumption: A multidimensional analysis based on global panel data. International Journal of Environmental Research and Public Health 2023; 20(4): 3124.
39. [39] Tanil G, Jurek P. Policies on renewable energy at the european and national level of governance: Assessing policy adaptation in the Czech Republic. Energy Reports 2020; 6: 548-553.
40. [40] Tariq G, Sun H, Fernandez-Gamiz U, Mansoor S, Pasha AA, Ali S, Khan MS. Effects of globalization, foreign direct investment and economic growth on renewable electricity consumption. Heliyon 2023; 9(3).
41. [41] Telatar OM, Adimli T. Impact of foreign direct investment on renewable energy consumption: Findings from bootstrap ARDL with a fourier function. International Journal of Energy Economics and Policy 2024; 14(5): 301-310.
42. [42] Van Nguyen C. The impact of financial development on renewable energy consumption: The case of Vietnam and other ASEAN members. International Journal of Financial Studies 2024; 12(2): 37.
43. [43] Voumik LC, Akter S, Ridwan M, Ridzuan AR, Pujiati A, Handayani BD, ... Razak MIM. Exploring the factors behind renewable energy consumption in Indonesia: Analyzing the impact of corruption and innovation using ARDL model. International Journal of Energy Economics and Policy 2023; 13(5): 115-125.
44. [44] World Bank, https://data.worldbank.org/indicator, 2024.
45. [45] Yu M, Jin H, Zhang H, Chong AYL. ICT, financial development and renewable energy consumption. Journal of Computer Information Systems 2023; 63(1): 190-203.
46. [46] Zaidi F, Riaz S, Saleem Z. A nexus between financial development and renewable energy consumption. The Journal of Contemporary Issues in Business and Government 2021; 27(6): 1243-1256.