Do environmental technology and renewable energy improve financial development? Evidence from G7 Countries
Abstract
This study reveals the impact of GDP per capita, trade openness, renewable energy and technology on financial development in the world's most developed countries for the period of 1990-2021. In this context, this study especially focused on whether environmental technologies and renewable energy support financial development. Driscoll-Kraay Panel regression analysis is used to estimate panel data in this study. In addition, panel quantile regression analysis is performed to determine the coefficients of the variables at different quantile. The long-run results are authenticated using panel fully modified ordinary least square (FMOLS), dynamic ordinary least square (DOLS) and canonical cointegration regression (CCR). It is concluded that increases in renewable energy consumption and environment-related technology reduce financial development in the long-run. Although many studies found that financial development has positive effects on renewable energy consumption, the feedback effect is negatively in G7 countries to current study. In other words, policy incentives should be provided to return the productive resources created by financial instruments used in renewable energy investments back to the financial system and balance financial growth between environmental sustainability. The results suggest that financial markets should be regulated to obtain the positive effects of environmentally friendly investments. In this respect, this study signals that we have entered a period in which financial markets need to be reorganized.