Low-Carbon Economic Growth and Bio-Renewable Energy Efficiency in Top High-Income European Union (EU) Countries: Role of Bank-Based Financial Development

Abstract

The current study examines the effects of economic growth, bio-renewable energy consumption and bank-based financial development on CO2 emissions in twelve top high-income European Union (EU) countries (EU-12) and in eleven top high-income European Union (EU) countries (EU-11) for the year between 1993-2020. For economic growth, the study investigates the environmental Kuznets curve (EKC) hypothesis to observe whether there exists the inverted U-shaped relationship between economic growth and CO2 emissions. In addition, the study examines the indirect effect of bank-based financial development on CO2 emissions by moderating bio-renewable energy consumption. The study applies Driscoll & Kraay (D&K) panel error estimation technique for the empirical analyses. While the EKC hypothesis is insignificant in EU-12 countries, the study indicates that the EKC hypothesis is significant in EU-11 countries where the country Luxembourg is excluded from the second panel group. However, both bank-based financial development and bio-renewable consumption reduce CO2 emissions where the study reveals that bio-renewable energy consumption is the most efficient variable in reducing CO2 emissions in both country panel groups. Moreover, the study observes that bank-based financial development can indirectly reduce CO2 emissions by moderating bio-renewable energy consumption in both country panel groups.