The Dynamic Nexus Among Energy Diversification and Carbon Emissions in the E7 Economies: Investigating the Moderating Role of Financial Development

ABSTRACT

This study investigates the role of financial development in moderating the impact of energy diversification on carbon emissions reduction, using a sample of seven major emerging (E7) economies over the period 1995–2018. A panel cointegration test is employed to investigate any long-run equilibrium relationship among variables. The moderating effect is uncovered using a panel autoregressive distributed lag (ARDL) model. The results from the cointegration test reveal the presence of a long-run equilibrium linkage among financial development, energy diversification, and carbon emissions. The panel ARDL model results indicate that the carbo n emissions reduction effect of energy diversification is strengthened by an increased level of financial development in the long-run. Notably, a 1% increase in energy diversification accompanied by a 1% increase in financial development favorably moderates the carbon emissions reduction impact by about 2.11%. This finding is novel and contributes to our understanding of how financial development moderates the carbon emissions reduction effect of energy diversification. Based on this finding, appropriate policy recommendations are suggested to achieve energy transition goals in the E7 economies.

KEYWORDS:

• Emerging economies
• financial development
• carbon emissions
• energy diversification
• panel auto regressive distributed lag model

JEL:

• Q42
• Q29
• C58

Disclosure Statement

No potential conflict of interest was reported by the authors.

Data Availability Statement

Available on request.

Supplementary Material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/1540496X.2022.2161817

Notes

1. E7 economies include Brazil, China, India, Indonesia, Mexico, Russia, and Turkey.

2. A comparison of invHHI and other relevant indices for measuring energy diversification is discussed in the Supplementary Material.

3. The TP series is compiled in Penn World Table version 10.0, and the following link is provided for additional information: https://www.rug.nl/ggdc/productivity/pwt/?lang=en.

4. Descriptive statistics are provided in Table S2 in the Supplementary Material.

Additional information

Funding

The authors reported there is no funding associated with the work featured in this article.