Decomposing the Magnitude and Technical Effects of Financial Growth and FDI on Renewable Energy Use

This research contributes to the literature by revealing the nature of scale and method impacts on renewable energy consumption, with foreign direct investment (FDI) and financial development as important elements influencing renewable energy demand. For empirical study, data from 38 nations from 2001 to 2020 are used. Second-generation methodological techniques are used to dissect scale and technique effects in this way. In the presence of cross-sectional dependency and structural breaks, the empirical results reveal the presence of co-integration between the model parameters. Furthermore, financial progress is tied to the use of renewable energy. Foreign direct investment and demand for renewable energy are favorably related. The composition effect has a detrimental impact on the usage of renewable energy. Economic growth and the use of fossil fuels have a beneficial influence on the use of renewable energy. Long-run estimate findings show that the relationships between renewable energy and FDI and renewable energy and financial development are U-shaped. It suggests that the scale impacts of FDI and financial development are outweighed by technology and composition effects, and hence the demand for renewable energy and, as a result, renewable energy consumption grows as economic growth progresses. Based on this, policy recommendations are made for these countries to achieve sustainable development by implementing changes to their energy policies.