Nexus between Renewable Energy, Co2 Emissions, Financial Development, Economic Growth and Sustainable Development Goals: Evidence from Environmental Performance Indexed Countries

Abstract

The main aim of this study is to evaluate the nexus between renewable energy, carbon emissions, financial development, economic growth, and sustainable development goals. A total data set from 1990 to 2016 was collected for 20 countries, the selection of countries is based on the clustering of the environmental performance index. The clustering provides with two clusters naming “High Environmentally Performing Countries” and “Moderate-Low Environmentally Performing Countries”. The data is for the variables: renewable energy, carbon emissions, financial development, economic growth and sustainable development goals. This study provides with five different models in the nexus and evaluates them using Fixed-Effect regression model. This study finds that the financial development is positively impacted by the renewable energy in both clusters. The financial development positively and renewable energy negatively influence the economic growth in both clusters. The third model is where this study finds the difference between the two clusters, the carbon emissions have a positive and significant relationship with the economic growth, financial development and negative significant relationship with the renewable energy in cluster “High Environmentally Performing Countries” whereas in the “Moderate-Low Environmentally Performing Countries” the economic growth has a negative impact on the carbon emissions, financial development doesn’t impact the carbon emissions and renewable energy has a positive relationship with the carbon emissions. Models 4 and 5 are similar with two different and relevant proxies of the sustainable development goals. The findings show that the carbon emissions have significant negative relationship with the sustainable development goal of renewable energy in both clusters. However, it isn’t relevant in the “Moderate-Low Environmentally Performing Countries” for the development of infrastructure. Economic growth becomes x irrelevant when the achievement of sustainable development goal is discussed regarding the share of renewable energy and for “Moderate-Low Environmentally Performing Countries” when it’s about developing sustainable infrastructure however very relevant when it is about “High Environmentally Performing Countries”. Impact of financial development on the sustainable development goal regarding the renewable energy is negative however the positive relationship with the sustainable development goal of sustainable infrastructure. Renewable energy has a positive and significant relationship with sustainable development goals in both clusters. This study is significant and relevant for the policy makers and the relevant policy implications are provided in the study.