Renewable energy consumption and carbon emissions in developing countries: the role of capital markets

Figures & data

Table 1. Effect of renewable energy consumption and capital market on carbon emission.

Non-linear model	Stock Market	Bond Market	All
VARIABLES	Model 1	Model 2	Model 3
CO2 emissionst-1	1.055***	0.980***	0.802***
	(0.0863)	(0.202)	(0.201)
Renewable energy consumption	−0.152***	−0.135***	−0.143***
	(0.00639)	(0.00642)	(0.00674)
Renewable energy consumption^2	0.00107***	0.000940***	0.00101***
	(6.83e-05)	(6.97e-05)	(7.29e-05)
Stock market capitalisation	−0.00349***		−0.00352***
	(0.00106)		(0.00107)
Corporate bond issuance		−0.132***	−0.128***
		(0.0225)	(0.0221)
GDP per capita	0.0212***	0.0258***	0.0287***
	(0.00815)	(0.00827)	(0.00836)
Financial development	1.252***	1.677***	1.466***
	(0.236)	(0.244)	(0.240)
Population growth	−0.177***	−0.0900*	−0.113**
	(0.0461)	(0.0462)	(0.0497)
FDI Inflow	−0.00119	−0.000362	−4.15e-05
	(0.00287)	(0.00292)	(0.00284)
Trade openness	−0.000147	0.000217	9.47e-05
	(0.00103)	(0.00110)	(0.00113)
Human development index	−0.325	−0.821*	−0.771
	(0.486)	(0.490)	(0.519)
Natural resources	0.00104	0.00366	0.00299
	(0.00457)	(0.00482)	(0.00490)
Institution	0.0364	0.154	0.126
	(0.0946)	(0.0950)	(0.101)
Time Fixed Effect	Yes	Yes	Yes
Country Fixed Effect	Yes	Yes	Yes
Constant	5.761***	5.854***	5.885***
	(0.354)	(0.361)	(0.378)
Observations	1,365	1,348	1,145
Number of groups	103	107	101
Number of instruments	16	16	16
F-statistics (p-value)	154.23(0.000)	65.44(0.000)	102.12(0.000)
AR(1): z(p-value)	−3.03 (0.00)	−2.18 (0.029)	−6.54 (0.038)
AR(2): z(p-value)	0.80 (0.423)	1.29 (0.197)	0.31 (0.759)
Sargan Test: Chi^2 (p-value)	2.507 (0.283)	3.18 (0.365)	0.282 (0.595)
Hansen Test: Chi^2 (p-value)	3.07 (0.382)	4.16 (0.245)	3.04 (0.38)
Threshold	71.03	71.81	70.79

Note: see Table A1 in Appendix A for the descriptyopn of variables and definitions. Standard errors in parentheses; *** p < 0.01, ** p < 0.05, * p < 0.1.

Figure 1. (a) Effect of renewable energy consumption on carbon emissions at levels of stock market capitalization influence of renewable energy consumption on carbon emissions at levels of stock market development.

A line graph showing carbon emissions on the y-axis decreasing as the level of renewable energy consumption on the x-axis increases but conditioned on an increasing level of stock market development; (b) Effect of renewable energy consumption on carbon emissions at levels of bond market Issuance Influence of renewable energy consumption on carbon emissions at levels of bond market development. A line graph showing carbon emissions on the y-axis decreasing as the level of renewable energy consumption on the x-axis increases but conditioned on an increasing level of bond market development.

Table 2. System dynamic GMM estimation: interaction effect of renewable energy consumption, capital market and carbon emissions.

VARIABLES	Stock Market	Bond Market
	Model 4	Model 5
CO2 emissionst-1	1.053***	0.988***
	(0.145)	(0.184)
Renewable energy consumption	−0.144***	−0.142***
	(0.00664)	(0.00644)
Renewable energy consumption^2	0.00106***	0.000914***
	(6.80e-05)	(6.89e-05)
Stock market capitalisation	0.0102***
	(0.00200)
Corporate bond issuance		−0.324***
		(0.0388)
Renewable energy consumption*Stock market capitalisation	−0.000141***
	(3.56e-05)
Renewable energy consumption*Corporate bond issuance		0.00437***
		(0.000724)
GDP per capita	0.0204**	0.0277***
	(0.00811)	(0.00817)
Financial development	1.176***	1.791***
	(0.235)	(0.242)
Population growth	−0.178***	−0.0969**
	(0.0459)	(0.0456)
FDI Inflow	−0.000891	0.000124
	(0.00285)	(0.00288)
Trade openness	−0.000138	−0.000248
	(0.00102)	(0.00109)
Human development index	−0.288	−0.932*
	(0.484)	(0.484)
Natural resources	0.000946	0.00291
	(0.00455)	(0.00476)
Institution	0.0284	0.177*
	(0.0941)	(0.0938)
Time Fixed Effect	Yes	Yes
Country Fixed Effect	Yes	Yes
Constant	5.417***	6.321***
	(0.363)	(0.364)
Observations	1,365	1,348
Number of groups	71	74
Number of instruments	16	16
F-statistics	1285.56(0.000)	205.76(0.000)
AR(1): z(p-value)	−2.07 (0.038)	−1.748 (0.000)
AR(2): z(p-value)	0.53 (0.597)	0.73 (0.466)
Sargan Test: Chi^2 (p-value)	14.47 (0.208)	0.62 (0.892)
Hansen Test: Chi^2 (p-value)	2.55	0.91
	(0.615)	(0.705)
Marginal Effect	−0.1511***	−0.1343***

Note: see Table A1 in Appendix A for the descriptyopn of variables and definitions. Standard errors in parentheses;*** p < 0.01, ** p < 0.05, * p < 0.1

Table 3. System dynamic GMM Estimation: Impact of carbon emission and capital market on renewable energy.

… .Non-linear effect	Stock Market	Bond Market	All
VARIABLES	Model 6	Model 7	Model 8
Renewable energy consumptiont-1	0.989***	0.971***	0.986***
	(0.0221)	(0.0201)	(0.0262)
CO2 emissions	−6.677***	−5.851***	−6.333***
	(0.251)	(0.250)	(0.271)
Co2 emissions^2	1.312***	1.154***	1.289***
	(0.0524)	(0.0532)	(0.0574)
Stock market capitalisation	0.0593***		0.0452**
	(0.0187)		(0.0196)
Corporate bond issuance		0.171**	0.186***
		(0.0860)	(0.0563)
GDP per capita	−5.67e-07**	−4.31e-07**	−5.57e-07**
	(2.32e-07)	(2.02e-07)	(2.42e-07)
Financial development	−7.436**	−5.462*	−5.775*
	(3.078)	(3.115)	(3.236)
Population growth	6.382***	8.172***	8.046***
	(0.580)	(0.540)	(0.624)
FDI Inflow	0.0788	0.0223	0.0673
	(0.0840)	(0.0832)	(0.0881)
Trade openness	−0.0109	0.00268	−0.00623
	(0.0142)	(0.0143)	(0.0152)
Human development index	−8.696	−9.203	−9.941
	(6.273)	(6.082)	(6.781)
Natural resources	0.0466	0.0447	0.0443
	(0.0586)	(0.0598)	(0.0639)
Institution	1.333	1.955*	2.039
	(1.211)	(1.171)	(1.306)
Time Fixed Effect	Yes	Yes	Yes
Country Fixed Effect	Yes	Yes	Yes
Constant	50.27***	44.40***	46.65***
	(4.483)	(4.470)	(4.899)
Observations	1,256	1,266	1,072
Number of groups	71	74	69
Number of instruments	15	15	16
F-statistics	23404.29 (0.000)	10941.86 (0.000)	13375 (0.000)
AR(1): z(p-value)	−2.79 (0.005)	−2.31 (0.021)	−2.50 (0.012)
AR(2): z(p-value)	−0.26 (0.796)	−1.20 (0.229)	−0.40 (0.69)
Sargan Test: Chi^2 (p-value)	0.55 (0.908)	15.47 (0.162)	0.16 (0.984)
Hansen Test: Chi^2 (p-value)	1.03 (0.795)	0.64 (0.726)	0.18 (0.981)
Threshold	2.5445***	2.5351***	2.4566***

Note: see Table A1 in Appendix A for the descriptyopn of variables and definitions. Standard errors in parentheses;*** p < 0.01, ** p < 0.05, * p < 0.1

Figure 2. (a) Effect of carbon emissions on renewable energy consumption at levels of stock market capitalisation influence of carbon emissions on renewable energy consumption at levels of stock market development; (b) Effect of carbon emissions on renewable energy consumption at levels of bond market issuance influence of carbon emissions on renewable energy consumption at levels of bond market development.

A line graph showing renewable energy consumption on the y-axis increasing as the level of carbon emissions on the x-axis increases but conditioned on an increasing level of bond market development.

Table 4. System dynamic GMM Estimation: interaction effect of carbon emission and capital market on renewable energy.

VARIABLES	Stock Market	Bond Market
	Model 9	Model 10
Renewable energy consumptiont-1	0.990***	0.971***
	(0.0250)	(0.0380)
CO2 emissions	−6.939***	−4.676***
	(0.315)	(0.308)
Co2 emissions^2	0.0364
	(0.0251)
Corporate bond issuance		1.023***
		(0.353)
CO2 emissions*Stock market capitalisation	0.0105
	(0.00763)
CO2 emissions*Corporate bond issuance		−1.065***
		(0.167)
GDP per capita	−5.71e-07**	−4.22e-07**
	(2.32e-07)	(1.99e-07)
Financial development	−7.940**	1.543
	(3.098)	(3.258)
Population growth	6.389***	7.796***
	(0.579)	(0.535)
FDI Inflow	0.0793	0.0211
	(0.0840)	(0.0819)
Trade openness	−0.0112	−0.00319
	(0.0142)	(0.0141)
Human development index	−8.696	−9.381
	(6.270)	(5.988)
Natural resources	0.0440	0.0349
	(0.0586)	(0.0589)
Institution	1.317	2.070*
	(1.211)	(1.153)
Constant	50.84***	43.84***
	(4.500)	(4.402)
Time Fixed Effect	Yes	Yes
Country Fixed Effect	Yes	Yes
Observations	1,256	1,266
Number of groups	69	74
Number of instruments	16	15
F-statistics	11557.52 (0.000)	9998.66 (0.000)
AR(1): z(p-value)	−2.49 (0.013)	−2.87 (0.004)
AR(2): z(p-value)	−0.39 (0.697)	−1.20 (0.228)
Sargan Test: Chi^2 (p-value)	0.13 (0.939)	0.42 (0.811)
Hansen Test: Chi^2 (p-value)	0.17 (0.919)	0.70 (0.705)
Marginal Effect		−6.5451***

Note: see Table A1 in Appendix A for the descriptyopn of variables and definitions. Standard errors in parentheses.

*** p < 0.01, ** p < 0.05, * p < 0.1.

Table A1. Measurement of control variables.

Key variables	Measurement	Source
Renewable energy consumption	Measured as the percent of total energy consumption that is renewable	WDI
Carbon emissions	Expressed in terms of metric tons per capita	WDI
Capital market indicators	(1) Stock market development (measured as the market capitalisation of listed domestic companies as a percent of GDP) and (2) Bond market development (measured as the corporate bond issuance volume as a percent of GDP).	WDI
Control variables
GDP per capita	Measured as the Gross domestic product per capita;	WDI
Financial development	This is an index constructed by IMF that contains nine indices that summarises how developed financial institutions and financial markets	WDI
Population growth	The percentage change in year-on-year population or natural log of total population	WDI
FDI inflows	Is the value of inward direct investment made by non-resident investors in the host economy expressed as a percent of GDP	WDI
Trade openness	Is the ratio of total trade to GDP	WDI
Human development index	A function of education, health and income of an economic	WDI
Natural resources	Is the percentage of natural resources to gross domestic product	WDI
Institution	As an aggregate of six indicators (rule of law, government effectiveness, control of corruption, political stability, regulatory quality and voice and accountability)	World Governance Indicators

Table A2. Descriptive statistics

Variables	Obs	Mean	Std. Dev.	Min	Max
CO2 emissions	3800	1.976	2.473	0	17.22
Renewable energy	3884	41.134	32.14	0.001	98.343
Stock market capitalisation	3578	50.546	73.273	0.026	1098.94
Corporate bond market	3532	1.755	3.106	−0.783	125.6
GDP per capita	3850	3.782	7.034	−64.047	149.973
Financial development	3753	0.035	0.184	0	1
Population growth	4074	1.695	1.335	−6.766	8.791
FDI inflows	3127	4.864	17.212	−58.323	451.716
Trade openness	3091	86.53	53.819	0.027	675.678
Human development index	3877	0.652	0.168	0.208	0.951
Natural resources	3407	6.968	11.104	0	74.132
Institution	3262	-.028	0.925	−2.449	1.97

Carbon emissions is measured as metric tons per capita; Renewable energy consumption is measured as renewable energy consumption as a percent of total energy consumption; Stock market is the total dollar market value of a company’s outstanding shares of stock. It is measured as the market capitalisation of listed domestic companies as a percent of GDP; Bond market is measured as the corporate bond issuance volume as a percent GDP; Gross Domestic Product is measured as the Gross domestic product per capita; Financial development is an index constructed by IMF that contains nine indices that summarises how developed financial institutions and financial markets are; Population (POP), percentage change in year-on-year population or natural log of total population; FDI inflow is the value of inward direct investment made by non-resident investors in the host economy expressed as a percent of GDP; Trade openness is the ratio of total trade to GDP; Human Development Index (HDI) a function of education, health and income of an economic; Natural Resource Rent is the percentage of natural resources to gross domestic product; Inflation is measured using consumer price index and measures economic stability; Institutions is measured as an aggregate of six indicators (rule of law, government effectiveness, control of corruption, political stability, regulatory quality and voice and accountability) from the World Governance Indicators

Table A3. Pairwise correlations

Variables	VIF	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)
(1) CO2 emissions	1.07	1.000
(2) Renewable energy consumption	1.23	−0.563	1.000
		(0.000)
(3) stock market capitalisation	1.03	0.035	0.083	1.000
		(0.016)	(0.000)
(4) corporate bond	1.03	0.011	−0.025	0.035	1.000
		(0.453)	(0.089)	(0.018)
(5) GDP per capita	1.06	−0.025	0.070	0.003	−0.026	1.000
		(0.076)	(0.000)	(0.821)	(0.079)
(6) Financial development	1.13	0.429	−0.274	0.114	0.080	−0.046	1.000
		(0.000)	(0.000)	(0.000)	(0.000)	(0.001)
(7) Population growth	1.18	0.023	0.281	0.047	0.019	0.163	−0.134	1.000
		(0.094)	(0.000)	(0.001)	(0.186)	(0.000)	(0.000)
(8) FDI inflows	1.12	0.005	−0.013	0.013	0.045	−0.003	−0.001	0.011	1.000
		(0.727)	(0.407)	(0.409)	(0.005)	(0.823)	(0.972)	(0.460)
(9) Trade openness	1.21	0.024	−0.014	0.001	−0.011	−0.011	0.017	−0.001	0.330	1.000
		(0.118)	(0.348)	(0.967)	(0.498)	(0.459)	(0.270)	(0.949)	(0.000)
(10) Human development index	2.50	0.006	−0.011	0.046	−0.004	0.010	−0.007	−0.036	0.095	0.286	1.000
		(0.709)	(0.483)	(0.005)	(0.793)	(0.520)	(0.669)	(0.021)	(0.000)	(0.000)
(11) Natural resources	1.25	0.010	0.000	0.005	0.018	0.015	−0.003	0.020	−0.018	−0.043	−0.225	1.000
		(0.523)	(0.991)	(0.753)	(0.247)	(0.314)	(0.832)	(0.158)	(0.212)	(0.004)	(0.000)
(12) Institution	2.89	0.006	−0.004	−0.017	0.000	−0.029	0.002	−0.022	0.110	0.309	0.759	−0.443	1.000
		(0.748)	(0.818)	(0.370)	(0.990)	(0.107)	(0.921)	(0.207)	(0.000)	(0.000)	(0.000)	(0.000)

Mean VIF = 1.245.

Carbon emmisions is measured in terms of metric tons per capita; Renewable energy consumption is measured as renewable energy consumption as a percent of total energy consumption; Stock market development is the total dollar market value of a company’s outstanding shares of stock. It is measured as the market capitalisation of listed domestic companies as a percent of GDP; Bond market development is measured as the corporate bond issuance volume as a percent GDP; Gross Domestic Product is measured as the Gross domestic product per capita; Financial development is an index constructed by IMF that contains nine indices that summarises how developed financial institutions and financial markets are; Population (POP), percentage change in year-on-year population or natural log of total population; FDI inflow is the value of inward direct investment made by non-resident investors in the host economy expressed as a percent of GDP; Trade openness is the ratio of total trade to GDP; Human Development Index (HDI) a function of education, health and income of an economic; Natural Resource Rent is the percentage of natural resources to gross domestic product; Inflation is measured using consumer price index and measures economic stability; Institutions is measured as an aggregate of six indicators (rule of law, government effectiveness, control of corruption, political stability, regulatory quality and voice and accountability) from the World Governance Indicators.