Abstract
To secure future universal access to modern energy, large investments in renewable energy technology are required. This paper estimates the impact of five banking sector performance indicators (return on asset, market capitalisation, asset quality, managerial efficiency, and financial stability) on renewable energy consumption for a global panel consisting of 124 countries. The study used a two-step system-GMM panel model to handle potential endogeneity and serial correlation. The paper considers three homogenous subpanels which are constructed based on the income group classification (high-, middle-, and low-income countries). Generally, our results show that improved banking sector performance enhances renewable energy consumption, with heterogenous effects across income group classification. For high-income (HI) countries, an increase in bank size together with improved asset quality and managerial efficiency has positive effects on renewable energy consumption. For middle-income (MI) and low-income (LI) countries, a high return on assets, an increase in bank size, and financial stability are positive determinants of renewable energy consumption. We also find heterogeneous effects of banking performance indicators across various renewable energy consumption types. The results highlight the importance of a well-functioning bank sector to achieve the investment in renewable energy needed to meet future energy demand and simultaneously decrease CO2 emissions.
Highlights
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Examines the effect of banking performance on renewable energy consumption (REC).
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Improved banking performance enhances renewable energy consumption globally.
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Heterogenous effect of the relationship between banking performance and REC across income groups.
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Market capitalization, asset quality, and managerial inefficiency explain REC in HI countries.
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Return on asset, market capitalization, asset quality, and z-score explain REC in MI and LC countries.
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A heterogenous effect of the relationship between banking performance and REC types is observed.
