Does financial development lower energy intensity?

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Front. Energy

2020, Vol. 14

Issue (3) : 620-634 https://doi.org/10.1007/s11708-019-0619-x

RESEARCH ARTICLE

Does financial development lower energy intensity?

Philip Kofi ADOM¹(

), Michael Owusu APPIAH², Mawunyo Prosper AGRADI³

¹. Department of Development Policy, School of Public Service and Governance, Ghana Institute of Management and Public Administration (GIMPA), Achimota, Ghana
². Department of Finance, Business School, University of Cape Coast, Accra, Ghana
³. Department of Banking and Finance, University of Professional Studies, Accra, Ghana

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Abstract

The growth-induced effects of financial development have been well-established in the empirical literature, as well as the significance of financial development to energy demand behavior. However, the empirical evidence on the relationship between financial development and energy intensity remains sparse in the literature. Given the multifaceted nature of the effects of financial development, the proposed relationship seems a complex one and warrants an empirical investigation. Using the case of Ghana, this study provides an empirical answer to the question: does financial development lower energy intensity? To provide solid grounds for either rejection or acceptance of the null hypothesis, this study performed several robustness checks. Generally, the evidence revealed that financial development lowers energy intensity. Further, the results revealed that the price of energy, trade liberalization and industry structure play significant roles. These results have important implications for the design of macro energy efficiency policies and the creation of a ‘Green Bank’.

Keywords financial development energy intensity energy efficiency Ghana

Corresponding Author(s): Philip Kofi ADOM

Online First Date: 22 April 2019 Issue Date: 14 September 2020

Cite this article:

Philip Kofi ADOM,Michael Owusu APPIAH,Mawunyo Prosper AGRADI. Does financial development lower energy intensity?[J]. Front. Energy, 2020, 14(3): 620-634.

URL:

https://academic.hep.com.cn/fie/EN/10.1007/s11708-019-0619-x
https://academic.hep.com.cn/fie/EN/Y2020/V14/I3/620

Tab.1 Unit root test

Tab.2 Bounds cointegrating test

Tab.3 Dependent variable: energy intensity

	FMOLS						Canonical Cointegration						Stock-Watson DOLS
	M1	M2	M3	M4	M5		M1	M2	M3	M4	M5		M1	M2	M3	M4	M5
lnPE	-0.171^a (0.0193)	-0.173^a (0.0192)	-0.175^a (0.0336)	-0.206^a (0.0320)	-0.174^a (0.0252)		-0.176^a (0.0189)	-0.179^a (0.0190)	-0.172^a (0.0351)	-0.201^a (0.0360)	-0.175^a (0.0257)		-0.153^a (0.0271)	-0.185^a (0.0219)	-0.169^a (0.0395)	-0.186^a (0.0381)	-0.175^a (0.0286)
lnPO	-0.189^a (0.0573)	-0.192^a (0.0573)	-0.401^a (0.1039)	-0.409^a (0.0916)	-0.232^a (0.0794)		-0.180^a (0.0650)	-0.181^a (0.0649)	-0.423^a (0.1157)	-0.415^a (0.0944)	-0.253^a (0.0877)		-0.233^c (0.1326)	-0.172^c (0.0854)	-0.362^a (0.1158)	-0.383^a (0.0927)	-0.247^b (0.1101)
lnFD(PS)	-0.413^a (0.0752)						-0.391^a (0.0754)						-0.338^c (0.1817)
lnFD(PSBK)		-0.417^a (0.0760)						-0.395^a (0.0763)						-0.381^a (0.1087)
lnFD(M2)			-0.191 (0.2399)						-0.118 (0.2839)						-0.145 (0.2666)
lnFD(M2_R)				-0.074 (0.0992)						-0.045 (0.0922)						-0.052 (0.1060)
FD(INDEX)					-0.130^a (0.0382)						-0.109^a (0.0364)						-0.098^c (0.2729)
lnTOP	-0.159 (0.1408)	-0.149 (0.1417)	-0.569^b (0.2297)	-0.497^a (0.2240)	-0.394^b (0.1831)		-0.133 (0.1834)	-0.118 (0.1854)	-0.615^b (0.2711)	-0.519^c (0.2818)	-0.429^c (0.2364)		-0.562 (0.3678)	-0.157 (0.2433)	-0.717^b (0.2814)	-0.684^b (0.2555)	-0.496^c (0.2838)
lnIVA	0.301 (0.1998)	0.285 (0.2000)	0.203 (0.3729)	0.064 (0.3246)	0.431 (0.2772)		0.242 (0.2244)	0.219 (0.2254)	0.223 (0.4270)	0.084 (0.3811)	0.399 (0.2991)		0.727^b (0.2575)	0.291 (0.2204)	0.450 (0.3906)	0.339 (0.3101)	0.490^a (0.2838)
Con	-17.070^a (0.5051)	-17.061^a (0.5064)	-14.515^a (0.7857)	-15.002^a (0.7999)	-17.192^a (0.8064)		-17.094^a (0.6206)	-17.092^a (0.6216)	-14.516^a (0.7651)	-14.952^a (0.7554)	-16.876^a (0.8222)		- 16.724^a (1.3600)	-17.284^a (0.8577)	-15.012^a (0.9422)	-15.181^a (0.9554)	-16.951^a (1.3278)
Adj R-square	0.955	0.954	0.905	0.908	0.931		0.957	0.956	0.903	0.909	0.934		0.984	0.981	0.956	0.960	0.960
SER	0.129	0.130	0.186	0.183	0.159		0.126	0.127	0.188	0.182	0.156		0.075	0.085	0.127	0.121	0.105
SSR	0.664	0.677	1.384	1.344	1.011		0.634	0.645	1.414	1.330	0.971		0.095	0.208	0.469	0.425	0.322
LRV	0.027	0.027	0.077	0.073	0.048		0.027	0.027	0.077	0.073	0.046		0.009	0.014	0.032	0.028	0.023

Tab.4 Dependent variable: energy intensity

	FMOLS						Canonical cointegration						Stock-Watson DOLS
	M1	M2	M3	M4	M5		M1	M2	M3	M4	M5		M1	M2	M3	M4	M5
lnPE	-0.160^a (0.0300)	-0.163^a (0.0297)	-0.192^a (0.0419)	-0.150^a (0.0365)	-0.194^a (0.0317)		-0.165^a (0.0302)	-0.168^a (0.0302)	-0.195^a (0.0443)	-0.149^a (0.0409)	-0.166^a (0.0377)		-0.152^a (0.0466)	-0.155^a (0.0469)	-0.057 (0.0461)	-0.087^b (0.0389)	-0.116^b (0.0440)
lnPO	-0.122 (0.0890)	-0.124 (0.0886)	-0.441^a (0.1296)	-0.358^a (0.1043)	-0.191^c (0.997)		-0.110 (0.1022)	-0.111 (0.1017)	-0.466^a (0.1461)	-0.366^a (0.1096)	-0.294^b (0.1286)		-0.332 (0.1956)	-0.317 (0.1932)	-0.425^a (0.1136)	-0.555^a (0.0851)	-0.485^a (0.1613)
lnFD(PS)	-0.414^a (0.1168)						-0.410^a (0.1214)						-0.196 (0.2635)
lnFD(PSBK)		-0.414^a (0.1175)						-0.411^a (0.1226)						-0.232 (0.2683)
lnFD(M2)			0.433 (0.2993)						0.527 (0.3587)						- 0.301 (0.2846)
lnFD(M2_R)				0.251^b (0.1131)						0.252^b (0.1233)						0.342^a (0.1163)
FD(INDEX)					-0.056 (0.0480)						-0.021 (0.0606)						0.024 (0.0808)
lnTOP	-0.384^c (0.2188)	-0.376^c (0.2192)	-0.649^b (0.2865)	-0.658^b (0.2552)	-0.537^b (0.2299)		-0.354 (0.2929)	-0.340 (0.2944)	-0.692^c (0.3518)	-0.693^b (0.3237)	-0.728^b (0.3563)		-0.685 (0.5618)	-0.614 (0.5997)	-1.459^a (0.2994)	-1.191^a (0.2514)	-1.321^a (0.4177)
lnIVA	0.894^a (0.3105)	0.877^a (0.3095)	0.126 (0.4650)	0.316 (0.3699)	0.694^c (0.3481		0.872^b (0.3727)	0.847^b (0.3722)	0.156 (0.5400)	0.381 (0.4468)	0.678 (0.4743)		0.866^c (0.4364)	0.839^c (0.4383)	1.401^a (0.4014)	0.765^b (0.2942)	1.067^a (0.3772)
Con	-18.338^a (0.7847)	-18.323^a (0.7833)	-15.954^a (0.9999)	-15.560^a (0.9114)	-17.810^a (1.0126)		-18.464^a (0.9631)	-18.457^a (0.9612)	-16.076^a (0.9240)	-15.579^a (0.8799)	-16.486^a (1.2627)		-16.652^a (2.0013)	-16.846^a (1.9932)	-13.901^a (1.0262)	-13.866^a (0.9483)	-14.391^a (2.1081)
Adj R-square	0.731	0.730	0.716	0.741	0.716		0.733	0.732	0.715	0.740	0.707		0.922	0.923	0.939	0.950	0.928
SER	0.311	0.312	0.317	0.306	0.320		0.310	0.311	0.317	0.307	0.325		0.165	0.164	0.146	0.132	0.158
SSR	3.879	3.891	4.027	3.745	4.095		3.854	3.864	4.114	3.758	4.225		0.625	0.017	0.490	0.404	0.575
LRV	0.065	0.064	0.070	0.095	0.076		0.065	0.064	0.119	0.095	0.107		0.039	0.039	0.021	0.017	0.027

Tab.5 Dependent variable: electrical energy intensity

Fig.1 Plot of estimated impact of financial development on energy intensity

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