BÁO CÁO TÓNG KÉTĐÈ TÀI NGHIÊN cứu KHOA HỌC THAM GIA XÉT GIẢI THƯỞNG “NHÀ NGHIÊN CỨU TRẺ UEH” NĂM 2024 TÊN ĐÈ TÀI: GREEN FINANCE, FINANCIAL DEVELOPMENT, ENERGY EFFICIENCY AND SUSTAINABLE
INTRODUCTION
Research motivation
Research on climate change is crucial as it poses a direct threat to humanity, with effects that are no longer hypothetical (Wolf & Moser, 2011) Approximately 1 billion children globally are at significant risk due to climate variability, highlighting the urgent need for action (Clark et al., 2020) The NGO KidsRights and UN High Commissioner for Human Rights Volker Turk have both emphasized that climate change jeopardizes human rights and could lead to severe poverty for future generations (Yunus, 2007) To address these challenges, global efforts must be intensified, particularly through the Sustainable Development Goals (SDGs) The SDGs, established by the United Nations, aim to tackle pressing global issues and promote a sustainable future by 2030, focusing on 17 specific goals that guide individuals, businesses, and governments in eradicating poverty and protecting the environment (Gupta & Vegelin, 2016) Among these goals, energy efficiency and sustainable economic development are gaining significant attention due to their immediate benefits and long-term strategic importance for humanity.
Energy efficiency plays a crucial role in reducing air pollution and combating climate change, as highlighted by Anh & Rasoulinezhad (2022) By enhancing energy efficiency, we can bolster energy security and environmental protection through reduced primary energy consumption and lower greenhouse gas emissions (Quang & Thao, 2022) However, global leaders face significant challenges in securing energy supplies amid escalating geopolitical tensions and a pressing global energy crisis, as noted by Sovacool et al (2023) The Global Energy Assessment Organization (GEA) reports that many nations are highly vulnerable and struggling with energy security Additionally, BP indicates that global energy consumption rose by 1.3% in 2019, while improvements in energy intensity fall short of the International Energy Agency's (IEA) targets for sustainable development.
Sustainable economic development has become a long-term goal for many countries, particularly in Asia, where nations like Vietnam, India, and China have experienced significant growth over the past decade (Hosan et al., 2022) Vietnam, for instance, has seen its GDP triple and an increase in foreign direct investment, despite the challenges posed by the Covid-19 pandemic However, this growth has largely stemmed from new fiscal policies and the extensive use of natural resources (Hassan et al., 2022) The over-reliance on these resources has led to environmental degradation and health risks, highlighting the urgent need for environmental protection (Nenavath & Mishra, 2023) While countries are gradually shifting towards greener economic strategies, these efforts are often considered modest due to the lasting effects of the pandemic and ongoing political instability.
The government must take decisive action to foster energy efficiency and sustainable economic development, especially in developing nations facing significant challenges A lack of funding for energy efficiency projects hinders progress, as highlighted by recent studies (Marzi et al., 2019; An & Yeh, 2021; Irfan et al., 2022) Additionally, the COVID-19 pandemic has exacerbated economic strains and sustainability risks, leading to increased uncertainty in production and economic outputs due to lockdowns and isolation measures The absence of sustained financial policies remains a critical barrier to achieving these goals (Iqbal et al.).
Achieving energy efficiency presents significant challenges for many countries, primarily due to financial constraints The high initial costs of implementing energy-efficient technologies can deter nations from making necessary investments, particularly when short-term economic pressures overshadow long-term benefits Sustainable economic development, while appealing globally, is difficult to attain, as many nations face shortages in natural resources, finances, and labor Limited access to financial support can hinder the development of effective policies for sustainability Additionally, inadequate infrastructure, including energy and transportation networks, poses a major obstacle to economic growth To overcome these issues, especially in Asian countries grappling with financial difficulties, it is essential to develop and enhance innovative financial tools that can support energy-saving projects and align with the United Nations' sustainable development goals.
Green finance plays a crucial role in promoting sustainable economic growth by providing external financial capital and expanding investment options for eco-friendly projects (Quang & Thao, 2022) As the green finance sector evolves, it addresses the limitations of traditional finance, which often prioritizes profitability over environmental considerations Research indicates that green finance positively impacts sustainable development (Nenavath & Mishra, 2023) and encourages the allocation of funds toward environmentally friendly and energy-efficient initiatives, thereby reducing liquidity risks for companies and fostering the adoption of innovative technologies (Tamazian et al., 2009) Furthermore, the relationship between financial development and environmental sustainability is illustrated by the increased energy demand that accompanies economic growth (Acheampong, 2019).
Significant research gaps exist in the correlation between financial development (FD) and energy While many studies explore this relationship, findings on the impact of FD on energy consumption are inconsistent Some research suggests that FD can lead to increased energy consumption and environmental degradation, as it provides individuals with greater financial resources to utilize diverse energy sources (Zhen et al., 2022; Li & Umair, 2023) Conversely, other studies highlight the positive role of FD in improving environmental quality and energy efficiency through the promotion of green infrastructure and technologies (Shah et al., 2022; Zhang et al., 2022) However, these studies often focus on energy usage rather than energy efficiency standards, limiting their applicability Additionally, there is a lack of sophisticated financial development indicators specific to the energy financing sector, with most previous research relying on broad money or domestic lending metrics, which may introduce measurement bias (Hunjra et al., 2022) The abstract nature of economic advancement further complicates the effective definition and measurement of these indicators (Bashir et al.).
A new strategy is essential for a comprehensive assessment of financial progress, as previous studies primarily focused on individual nations or combined developed and developing countries, often overlooking Asian nations While the relationship between financial development (FD) and economic growth has garnered attention, with recent studies highlighting FD's positive impact on growth, traditional metrics like GDP and per-capita income remain the focus The concept of sustainable economic development (SED), which balances income and environmental durability, is often neglected, resulting in a lack of evidence regarding FD's contribution to SED in Asian countries.
A vast body of literature explores the interplay between financial development, green finance, energy efficiency, and sustainable economic growth, particularly focusing on environmental regulations and natural resource abundance Specifically, the effectiveness of environmental taxes as a regulatory tool raises questions about their universal applicability in addressing energy and environmental challenges across different countries On one hand, these taxes serve as a mechanism to oversee and restrict inefficient energy usage by businesses and individuals (Ward & Cao).
In developing countries, high levels of income inequality can make the implementation of environmental taxes particularly challenging, as these taxes may disproportionately burden low-income households that allocate most of their income to basic needs This additional financial strain can hinder businesses' ability to invest in greener technologies Furthermore, the relationship between natural resource abundance and sustainable economic development raises important questions, as evidenced by the resource curse hypothesis, which suggests that regions rich in natural resources can still experience poverty and underdevelopment This study aims to explore the regulatory impact of environmental regulations and the abundance of natural resources in Asian countries.
This research aims to explore the impact of green finance and financial development on energy efficiency and sustainable economic growth across 49 Asian countries The study is driven by six key motivations, emphasizing the importance of understanding these relationships for promoting sustainable development in the region.
2013 to 2022, with the moderating role of environmental regulations and natural resources abundance.
Research objectives
This study analyzes the impact of green finance and financial development on energy efficiency and sustainable economic growth in 49 Asian countries from 2013 to 2022 It highlights the significant relationship between these factors, while also examining the moderating effects of environmental regulations and natural resource abundance The research aims to provide valuable recommendations for enhancing energy efficiency and promoting sustainable economic growth.
Research questions
This research is done by answering the following questions:
1) Does Green Finance have a significant effect on Energy Efficiency?
2) Does Financial Development have a significant effect on Energy Efficiency?
3) Does Green Finance have a significant effect on Sustainable Economic Growth?
4) Does Financial Development have a significant effect on Sustainable Economic Growth?
5) Does Natural Resources Abundance moderate the relationship between Financial Development and Sustainable Economic Development?
6) Do Environmental Regulations moderate the relationship between Green Finance and Energy Efficiency?
Research methodology
This study employs a quantitative analysis of unbalanced panel data using STATA version 16, applying various econometric methods Initially, it utilizes pooled OLS, fixed effects model (FEM), and random effects model (REM), followed by the Hausman specification test to identify the most appropriate model To address issues of endogeneity, heteroscedasticity, and autocorrelation, the analysis subsequently applies the two-step system GMM (SGMM) estimator and feasible generalized least squares (FGLS).
Research scope
In order to guarantee the applicability and comprehensiveness of this research, data was collected in 10 years during the period from 2013 to 2022, from 49 countries in Asia.
Research contribution
This study explores key theories and concepts related to green finance, financial development, energy efficiency, and sustainable economic growth It introduces sustainable development theory, the STIRPAT model, the environmental Kuznets curve, the resource curse hypothesis, the financial resource curse, and environmental economic theory, contributing to existing research gaps The analysis includes direct measures of financial development through institutions and financial markets, utilizing data from 49 Asian countries, a relatively new sample Unlike previous studies that focused on economic development and energy consumption, this research emphasizes sustainable economic growth and energy efficiency Findings reveal that while green finance does not directly impact energy efficiency or sustainable economic development, environmental regulations enhance green finance's role in improving energy efficiency Additionally, financial development positively influences sustainable economic growth, with natural resource abundance strengthening this relationship Notably, the impact of financial institutions on energy efficiency and sustainable growth is greater than that of financial markets, and the effects of green finance and financial development are more pronounced in countries committed to carbon neutrality compared to those without emissions reduction targets.
To enhance energy efficiency and promote sustainable development, it is essential for policymakers to implement effective environmental regulations and development strategies that support green finance Accelerating the establishment of mechanisms, such as testing sandboxes for innovative business models, and fostering the growth of green bonds, stocks, and credit markets are crucial steps Additionally, increasing communication and guidance from the government and organizations will help raise awareness and drive action towards achieving sustainable development goals.
Research structure
The study is organized into five sections: Chapter 1 outlines the research topic, objectives, methodology, and its contributions; Chapter 2 provides a critical review of the theoretical framework and related studies; Chapter 3 details the research model, data, and econometric methods; Chapter 4 presents the empirical results and discussions; and Chapter 5 concludes with research implications, limitations, and future directions.
LITERATURE REVIEW
Concept definition
Green financial instruments hold significant potential for enhancing energy-saving projects, as highlighted by researchers such as Fang et al (2022) and Yu et al (2022) Although the term "green finance" lacks a clear definition in the literature, it can be interpreted in various ways Lindenberg (2014) describes green finance as funding for environmentally friendly investments from both government and private sectors, while Ozili (2021) emphasizes its role in financing projects that promote environmental sustainability alongside financial returns Additionally, Peng & Zheng (2021) view green finance as a funding source that harmonizes environmental conservation with economic growth According to the United Nations Environmental Program, green finance also includes increasing financial support for initiatives that foster sustainable development While it encompasses a broader scope than just investing, some individuals equate green finance with green investing.
Financial development encompasses a complex interplay of financial markets and institutions, including banks, insurance companies, and various other entities Key components of this landscape are the stock and bond markets, which play crucial roles in facilitating investment and economic growth According to Kevin & Giancarlo, understanding these elements is essential for grasping the broader implications of financial development.
In 2011, the World Economic Forum defined financial development as the processes, regulations, and institutions that create effective financial markets and ensure widespread access to capital Sahay et al (2015) utilized principal component analysis to establish financial development indices, evaluating financial institutions and markets based on depth, accessibility, and efficiency Accessibility refers to the ability of individuals and businesses to obtain financial services, while efficiency encompasses the capacity of institutions to offer these services at reasonable costs and generate long-term profits, alongside the level of activity in capital markets This framework includes an overall financial development index, as well as specific indices for financial institutions and markets, focusing on their depth, accessibility, and efficiency (Ma et al., 2022).
Energy efficiency is a crucial goal for many nations facing climate change, defined as the ratio of planned to actual energy usage, incorporating technical, economic, and societal factors (Zhang et al., 2011) To enhance energy efficiency, efforts must focus on improving energy-consuming technologies and developing innovative economic strategies Green finance plays a vital role in this process by funding the development of green technologies, making it essential to examine the relationship between green finance and energy efficiency, as the latter is key to addressing environmental challenges and fostering a green economy (Wang & Wang, 2022) Currently, energy efficiency is assessed through total factor energy efficiency (TFEE) and single factor energy efficiency (SFE), with SFE primarily evaluating the energy input-output relationship via energy intensity, while TFEE considers the contributions of labor and capital to output and the substitution effects among various production inputs, providing a more comprehensive view of actual energy usage efficiency (Chang, 2013).
Sustainable development, as defined by the Brundtland Commission, is the process of meeting present needs without compromising future generations' ability to meet theirs, emphasizing economic growth through renewable resources while respecting ecological processes and biodiversity (Nenavath & Mishra, 2023) The primary aim of sustainable economic development is to achieve long-term stability for both the economy and the environment, necessitating the integration of economic, environmental, and social considerations in decision-making (Hunjra et al., 2022) Many countries, including Vietnam, are actively pursuing rapid and sustainable economic development as a strategic goal, reflected in their national socio-economic policies and plans However, there are currently no binding international regulations governing the implementation of sustainable economic development policies (Haddad & Hornuf, 2019).
Environmental regulations are essential laws designed to protect the environment and promote sustainability The government plays a crucial role in establishing and enforcing policies related to energy consumption and resource management, which helps achieve energy efficiency (Ge et al., 2022) These environmental policies impact energy efficiency through direct effects, such as financial instruments like subsidies and taxes, and indirect effects, including regulatory measures like standards and enforcement (Song et al., 2020) The government employs command and control strategies to manage energy use, such as imposing emission limits and shutting down high-energy-consuming businesses (Shuhong et al., 2020) Additionally, by implementing taxes and incentive programs, the government encourages businesses to reduce fossil fuel consumption and support environmental protection initiatives.
Natural resources, as defined by Stiglitz (1980), are products derived from nature that are not artificially created; however, this definition lacks precision as human intervention is often necessary for transforming resources like oil into useful goods Stiglitz suggests categorizing natural resources into exhaustible, renewable, inexhaustible but non-augmentable, and recyclable types Countries rich in natural resources typically implement favorable policies to exploit these resources for economic growth, creating jobs and increasing income, particularly in remote areas Nevertheless, the exploitation of non-renewable resources can lead to rapid depletion, environmental pollution, and significant ecological changes in surrounding habitats.
Theoretical framework
Sustainable development (SD) has emerged as a vital strategy for global social and economic transformation, first introduced in the 1980s and now a key focus of high-level political agendas It emphasizes the interconnected growth of the economy, society, and environment, with governments and businesses prioritizing SD principles Research institutions worldwide are increasingly aligning their missions with SD goals Despite various definitions and some misunderstandings surrounding SD, its importance continues to rise due to population growth and limited natural resources As highlighted by Khan et al (2022), there is an ongoing call for the responsible use of resources to meet present needs without compromising future generations' ability to meet their own, underscoring the need for a balance between social progress, environmental protection, and economic prosperity.
The "green paradox" refers to a scenario where climate policies, such as carbon taxes, inadvertently lead to an increase in carbon emissions, at least in the short term Introduced by Sinn (2008), this concept highlights how such policies can affect the long-term profits that fossil resource owners expect from their assets, thereby influencing their extraction decisions Since its inception, the term has gained traction in discussions about the unintended effects of climate measures The ongoing discourse in climate economics has examined the validity of the green paradox theory and its implications for global climate change mitigation efforts Although the term is relatively new, prior research has explored the effects of taxation on resource extraction timing (Long & Sinn, 1985).
2.2.3 Environmental Kuznets Curve (EKC) hypothesis
The Environmental Kuznets Curve (EKC) hypothesis, derived from Kuznets' 1995 theory on income inequality and economic development, posits an inverted U-shaped relationship between GDP and environmental pollution Initially, economic growth leads to increased environmental pollution; however, as income levels rise, environmental quality tends to improve While many pollutants have seen rising emissions, developed nations have experienced a decline in certain local contaminants Research that controls for various factors indicates that per capita emissions tend to increase with higher per capita income, although adjustments in these factors could potentially mitigate pollution levels.
Source: Yandle, Bhattarai and Vijayaraghavan, (2004) 2.2.4 STIRPAT model
The STIRPAT model, which stands for "Stochastic Impacts by Regression on Population, Affluence, and Technology," is a valuable analytical tool used in ecological economics and environmental sociology This model aims to understand the complex relationship between human activities and environmental changes.
It acknowledges that a number of variables, such as population size, per capita wealth (affluence), and technological advancement, have an impact on environmental impacts.
The STIRPAT model employs regression analysis to assess the interactions among key variables that influence environmental outcomes, such as population, wealth, and technological changes This method quantifies their contributions to issues like deforestation, carbon emissions, and water pollution By examining these components and their relationships, the model provides valuable insights into the factors driving environmental conservation or degradation As noted by York et al (2003), the STIRPAT model is a prominent framework in environmental economics literature, building on the foundational IPAT (Impact) concept.
The STIRPAT model, an advancement of the original IPAT model proposed by Ehrlich and Holden in 1971, addresses the limitations of the IPAT theory by accounting for non-proportional and non-monotonic relationships among environmental factors As highlighted by Nosheen et al (2020), the primary goals of the STIRPAT model include predicting the influences on pollutant emissions such as SO2, carbon dioxide (CO2), and PM2.5, while explaining the underlying driving forces Additionally, the STIRPAT model offers the capability to estimate the coefficients of each variable, assess the impact of various driving factors, and adapt the influencing elements accordingly, as noted by Shao et al (2016).
The resource curse, also known as the paradox of plenty and the poverty paradox, suggests that an abundance of natural resources in low- and middle-income countries can lead to negative developmental outcomes Emerging in discussions during the 1950s and 1960s, this hypothesis argues that resources may act as an economic burden rather than a blessing, as noted by Steele in 1771, who observed that countries rich in resources often experience poor living conditions The central premise of the resource curse is that mineral and fuel wealth in less developed nations can result in adverse effects such as poor economic performance, growth collapses, high corruption levels, inadequate governance, and increased political violence, challenging the notion that resource abundance guarantees sustainable economic development.
The resource curse theory, established by Sachs and Warner in 1995, highlights a paradox where countries rich in natural resources, particularly fossil fuels and rare minerals, often experience delayed economic development This phenomenon occurs due to instability induced by geopolitical, sociopolitical, and military factors, leading to persistent poverty and underdevelopment in resource-abundant regions (Dogan et al., 2020; Badeeb et al., 2017).
The financial resource curse (FRC) hypothesis introduces a new perspective on financial development by suggesting a connection between natural resources and economic growth Resource revenues enhance liquidity, facilitating credit extension by banks to individuals and businesses, thereby promoting financial development Countries rich in natural resources are expected to have strong institutional and political frameworks that support economic growth Effective regulatory mechanisms for contracts between creditors and debtors can mitigate the negative effects of resource income on financial development However, a weak institutional and political structure can lead to challenges in contract enforcement and debt recovery (Dwumfour & Ntow-Gyamfi, 2018) Additionally, the growth of the manufacturing sector, crucial for improving economic conditions in resource-rich nations, often receives insufficient attention, as generating income from natural resources is perceived as easier Neglecting sectoral development can undermine the credit system, institutional infrastructure, and overall financial development (Bhattacharya & Hodler, 2014).
Empirical evidence
2.3.1 The effect of green finance on energy efficiency
Green finance, as defined by Klein et al (2019), involves financing investments that yield environmental benefits This concept supports the advancement of green initiatives, including energy efficiency projects, which lead to reduced air pollution and decreased consumption of natural resources.
Wang & Wang (2022) found that green finance does not significantly impact energy efficiency in China, despite a general trend of improvement in energy efficiency over time Their study, which utilized the Tobit model to analyze regional energy efficiency, revealed that while the eastern region has seen the most substantial growth in energy efficiency, the western region has experienced minimal progress Overall, green financing has not driven a national increase in energy efficiency; however, it has positively influenced the eastern region, whereas it has hindered progress in the central region, with little to no correlation observed in the west.
In China, the relationship between green finance and energy efficiency is essential for tackling environmental degradation caused by excessive energy consumption and high carbon emissions Research by Guo et al (2023) utilizing the non-radial distance function (NDDF-DEA) approach reveals that energy efficiency across 30 provinces has declined over time due to geographical dependence, while spatial spillover effects of green finance can enhance energy efficiency in local and neighboring regions Zhou et al (2023) found that China's green finance pilot policy (GFPP) significantly improves total factor energy efficiency (TFEE) by fostering green technology innovation and optimizing industrial structures, particularly in areas with strong environmental laws An et al (2023) demonstrated that green finance development reduces energy intensity, with a notable threshold effect, and suggested targeted policies to accelerate reductions in energy intensity Yang (2023) confirmed regional disparities in energy efficiency, noting that while green finance benefits the eastern regions, it has limited effects in the central and western areas Wang & Ji (2023) highlighted that green finance significantly influences energy conservation and carbon reduction across provinces, with varying impacts on energy efficiency and consumption structures Lastly, Lv et al (2022) indicated that while green finance lowers regional energy intensity, overall financial development can have a counterproductive effect, emphasizing the importance of enhancing green finance to optimize energy use and reduce emissions.
A study by Liu et al (2021) explored the relationship between green financing, renewable electricity production, and energy efficiency in both developed and developing countries using data envelopment analysis (DEA) from 2016 to 2020 The findings revealed a 24% likelihood of increased global investment in renewable energy through energy efficiency projects, although this potential declined by 17% during 2017 and 2018, posing risks to the Paris Climate Change Agreement and the Sustainable Development Goals (SDGs) The research highlights that the progress of green initiatives is hindered by limited access to private funding, emphasizing that sustainable energy efforts are increasingly dependent on financial resources rather than technological advancements The authors recommend prioritizing the valuation of environmental initiatives as a policy strategy to enhance electricity generation and energy efficiency, noting that such capital-intensive infrastructure projects require long-term funding commitments.
By 2030, an estimated $26 trillion in green financing will be essential for both industrialized and developing nations to enhance energy efficiency, support growth, and reduce energy poverty Recent studies highlight the need for specific policy measures, particularly in the post-COVID-19 context, to achieve energy sustainability goals Effective implementation of these policies could significantly improve energy generation and efficiency through green financing Additionally, the data envelopment analysis (DEA) method was utilized by Yu et al to assess these implications.
A study conducted in 2021 assessed the impact of sustainable investments on energy efficiency (EE) in both advanced and emerging economies over a decade, from 2008 to 2018 The findings revealed that both types of economies exhibited low energy efficiency levels, scoring only 0.44 Notably, only seven countries emerged as leaders in energy savings, primarily from the DEA and the West Asia and North regions.
Since 2013, the average energy efficiency (EE) ratio between developed and developing nations has decreased, highlighting the importance of financial investment in enhancing EE Furthermore, the study suggests that open economic systems can lead to improved environmental conditions by reducing pollution levels It also indicates that corruption can have a dual effect, potentially supporting energy efficiency while simultaneously decreasing pollution.
A study by Liu et al (2022) analyzed 290 E7 cities, revealing that FinTech, green financing, and financial inclusion significantly impact energy efficiency, with green finance being the most beneficial Factors such as financing mechanisms and institutional support diminish the roles of financial inclusion and FinTech in enhancing energy efficiency Policymakers are urged to implement energy-friendly policies to facilitate green financing in E7 economies Pavlyk (2020) highlighted a growing trend in literature on green investments and their positive effects on renewable energy and GDP per capita Mandli et al (2023) explored the relationship between CO2 emissions and green finance in the ten largest economies, finding that vegetable bonds effectively support green projects and reduce emissions, though no immediate causal link exists Similarly, Rasoulinezhad & Taghizadeh-Hesary (2022) confirmed that green bonds promote green energy projects while emphasizing the need for long-term supportive policies to boost private investment in sustainable initiatives Quang & Thao (2022) investigated the impact of green bonds on energy efficiency in ASEAN countries, revealing a short-term negative effect on energy intensity and highlighting the influence of factors like income and renewable energy availability.
2.3.2 The effect offinancial development on energy efficiency
Examining the impact of various financial development characteristics on energy intensity is crucial due to the diverse effects financial development can have on energy consumption Existing literature presents multiple viewpoints on the relationship between financial development and energy intensity, highlighting the complexity of this interaction.
Financial development negatively impacts energy efficiency by increasing energy intensity, as demonstrated by Lv et al (2022) through their analysis of provincial panel data from China (excluding Tibet) between 2007 and 2019 Their research revealed that while green finance contributes to reducing regional energy intensity, financial development tends to enhance it The study identified an inverted U-shaped relationship, where the effect of financial development on energy intensity varies based on the level of green finance development Additionally, green funding significantly aids in the geographical transmission of regional energy intensity In a related study, Pan et al (2019) explored the causal relationships among financial development, trade openness, technical innovation, and energy intensity in Bangladesh, using annual time series data from 1976.
In 2014, researchers employed the structural vector autoregression (SVAR) model and directed acyclic graphs (DAG) to analyze the effects of economic growth, trade openness, financial development, and technological innovation on energy intensity The findings indicated that while economic growth significantly influences energy intensity in the short term, this effect diminishes over time Ibrahim et al (2021) further explored the relationship between Islamic financial development and energy intensity across 30 countries with Islamic banks, revealing that Islamic banking contributes to increased energy intensity alongside factors like energy imports, renewable energy use, and carbon emissions They emphasized the need for regulations to promote Shariah-compliant investments in clean energy technologies to reduce energy intensity and support sustainable development Additionally, Rahman et al (2023) analyzed the impact of industrialization, trade openness, financial development, and urbanization on energy intensity in 12 Newly Industrialized Countries (NICs) from 2000 to 2020 using advanced econometric methods Their results showed that industrialization raises energy intensity in both the short and long term, while financial development has a gradual effect Trade openness was found to reduce energy intensity in the long run, but not in the short, with minimal impacts from urbanization The study concluded with policy recommendations to enhance trade openness and invest in efficient, eco-friendly technologies.
Financial development significantly enhances energy efficiency by reducing energy intensity, as evidenced by Li et al (2021), who found regional disparities in energy efficiency across China, with more developed economies exhibiting higher efficiency The study emphasizes the importance of foreign direct investment (FDI) in optimizing the benefits of financial development and industrial structure Aller et al (2018) further explored the relationship between financial development and energy use in 28 Chinese provinces, revealing that a dysfunctional finance system hinders reductions in energy intensity, particularly post-implementation of the Green Credit Policy Challenges such as domestic financing difficulties and capital misallocation diminish incentives for energy sector investments In Ghana, Adorn et al (2020) confirmed that financial development contributes to lower energy intensity while highlighting the roles of trade liberalization, industry structure, and energy prices These findings are crucial for shaping macro energy efficiency initiatives and establishing a "Green Bank." Additionally, Tamilselvan et al utilized the Autoregressive Distributed Lag (ARDL) approach to examine similar dynamics in India, underscoring the global relevance of financial development in promoting energy efficiency.
In 2022, a study examined the impact of financial development and economic expansion on energy intensity in India, revealing a significant long-term correlation between economic growth and energy intensity The findings indicate that both short- and long-term energy intensity are negatively and substantially influenced by financial and economic development, suggesting that these factors contribute to a nationwide reduction in energy intensity This research serves as a valuable resource for Indian policymakers, emphasizing the importance of maintaining a complementary relationship between financial development and energy intensity.
At the international level, numerous economic groups were discussed and studied when investigating the effect of financial development on energy efficiency Shah et al.
A study conducted in 2022 examined the economic correlations among G7 countries from 1996 to 2015, focusing on energy efficiency, trade, financial development, and political stability The findings suggest that trade enhances energy efficiency, while innovations and research boost commerce without improving energy efficiency Governance positively influences commerce but has a limited effect on energy efficiency Financial development is linked to improved energy efficiency, emphasizing the need for a connection between energy efficiency and government integrity to achieve environmental goals Chen et al (2019) explored the relationship between financial system development and energy intensity, finding that financial development negatively impacts energy intensity in non-OECD countries, while its effect is minimal in OECD nations Additionally, a U-shaped relationship exists in developing countries, indicating that promoting financial development can lower energy intensity, necessitating long-term policies for balance Mills et al (2021) utilized a dynamic DEA model to analyze energy efficiency in 58 B&R countries, revealing that financial development positively affects energy efficiency but is less significant in countries with advanced financial systems Urbanization and land area negatively impact energy efficiency, whereas technological advancement supports it Similarly, Ma et al (2022) studied 67 developing countries from 1995 to 2018, identifying six financial development indicators that significantly reduce energy intensity, highlighting the importance of enhancing financial institutions and markets The results underscore the multifaceted effects of financial development on energy intensity in emerging nations.
2013 is a global sample of 81 economies, divided into three subsamples: 29 high income,
Foreign direct investment (FD) influences production energy intensity, generally increasing it, except when financial institutions demonstrate efficiency While financial depth and access reduce energy usage intensity, the impact of financial institutions on energy consumption is rising, contrasting with the declining influence of financial markets Countries with higher FD experience lower production energy intensity, and those with robust financial institutions see reduced consumption energy intensity, though the reverse is true for financial markets The effects of FD on production energy intensity vary across different research samples, highlighting the need for careful policy considerations regarding the role of finance in energy efficiency Adorn et al (2023) contribute to this discourse by addressing biases that obscure the causal relationship between financial development and technological energy efficiency (TEE), finding that while financial institutions promote TEE, access to them is paramount Additionally, Ziolo et al (2020) utilized data envelopment analysis and regression to explore energy efficiency in OECD countries from 2000 to 2018, revealing a slight upward trend in total factor energy efficiency (TFEE) levels, with developed nations outperforming their developing counterparts The relationship between TFEE and sustainable economic and financial development varies based on the factors considered.
2.3.3 The effect of green finance on sustainable economic growth
Research gap
Despite ongoing interest from experts in green finance, energy efficiency, and sustainable economic growth, a significant gap remains in the literature Previous studies have explored the relationship between financial development (FD) and energy use, revealing that the impacts of FD on energy consumption are not evenly distributed Some research suggests that FD can lead to increased energy consumption and environmental degradation, as individuals with more financial resources tend to utilize various energy sources (Zhen et al., 2022; Li & Umair, 2023) Conversely, other studies highlight the positive connection between FD and the advancement of green infrastructure and technology, emphasizing the FD sector's crucial role in enhancing environmental quality and energy efficiency (Zhang et al., 2022; Shah et al., 2022) However, a notable limitation of this research is its focus on energy consumption rather than energy efficiency metrics Furthermore, the energy financing industry currently lacks sophisticated metrics for financial development, with most past research relying on broad money or domestic lending indicators, which do not adequately capture the complexities of actual financial development and hinder accurate assessments of economic advancement (Bashir et al., 2023).
A novel approach is essential for accurately evaluating financial success, as this study employs two variables from distinct perspectives to analyze financial progress more comprehensively than previous research, which primarily focused on markets and financial institutions While interest in the relationship between financial development (FD) and energy efficiency has emerged, existing studies are often limited to single countries or fail to adequately represent Asian nations, making it challenging for other countries to use these findings as legislative standards Despite some dissent regarding the link between FD and economic growth, recent studies have shown a positive correlation, yet most research continues to emphasize traditional economic growth indicators like GDP and per-capita income The concept of sustainable economic development, which balances income stability with environmental concerns, remains underexplored, particularly concerning the impact of FD on SED in Asian countries.
Hypothesis development
2.5.J The impact of green finance on energy efficiency
Green finance is crucial for funding environmental projects, particularly those focused on energy efficiency (Liu et al., 2021) Financial institutions are increasingly interested in energy project financing, often utilizing green bonds to support these initiatives (Azhgaliyeva & Liddle, 2020) By directing capital to industries with low energy consumption and pollution, green finance promotes economic optimization and the dual development of the economy and environment through various mechanisms such as green credit and carbon finance (He et al., 2021) It ensures households and businesses have access to funding for energy-efficient upgrades, while also incorporating capacity-building and technical assistance activities In recent years, green finance has become vital for maximizing clean energy production from renewable sources and enhancing national energy efficiency Research on energy policies can further support the development of energy efficiency initiatives, demonstrating that green finance significantly boosts renewable energy production (Liu et al., 2021) Additionally, as the green finance sector grows, it provides more investment opportunities for environmentally friendly businesses, including high-tech and green technology firms.
Ỉ The impact of green finance on energy efficiency
Hypothesis Hl: Green finance has a positive effect on energy efficiency.
2.5.2 The impact of green finance on sustainable economic development
Green finance refers to the flow of financial resources into sustainable ventures, environmental products, and policies that foster a sustainable economy, allowing financial institutions to consider environmental protection in their investment decisions This approach not only attracts funding for green enterprises but also addresses gaps in traditional finance, promoting long-term economic stability by enhancing infrastructure and reducing environmental impact As a burgeoning economic activity, green finance effectively manages carbon emissions, modernizes energy-intensive industries, and supports the development of eco-friendly technologies, thereby fostering innovation and competitiveness in green industries Studies indicate that green finance contributes to high-quality economic growth by positively influencing environmental outcomes and economic structures, offering mechanisms that align environmental benefits with sustainable growth By broadening its focus to include energy efficiency and environmental protection, green finance fills the void left by traditional finance, which primarily prioritizes profitability, thus demonstrating a significant positive impact on sustainable economic development.
(2022) offered insights into the mechanisms that green finance could enhance economic sustainability Therefore, hypothesis proposed is:
Hypothesis H2: Green finance has a positive effect on sustainable economic development.
2.5.3 The impact of financial development on energy efficiency
Financial development is a complex process involving the growth of financial markets and institutions, such as banks and insurance providers, which play a crucial role in enhancing economic growth and energy efficiency By attracting foreign direct investment and promoting research and development, financial development helps reduce energy intensity and improve energy effectiveness As banking institutions and capital markets expand, access to capital increases for individuals and businesses, enabling greater investment in energy-saving technologies and programs Developed financial markets offer a diverse range of financial products, making innovative, environmentally friendly technologies more affordable for emerging nations This accessibility can stimulate regional growth and enhance energy efficiency through three main channels: increased investment in research and development, the acquisition of advanced machinery, and the adoption of energy-efficient practices.
A developed financial system plays a crucial role in reducing uncertainty and asymmetric information in investments, thereby increasing research and development (R&D) spending (Tamazian et al., 2009) It also channels funds into environmentally friendly and energy-efficient projects, which lowers liquidity risks for companies and encourages the adoption of innovative technologies (Tamazian et al., 2009; Pan et al., 2019) Financial development is fundamental to economic growth, influencing production, savings, fixed investment, and education (Madsen & Ang, 2016) Empirical studies have demonstrated a link between financial development and energy efficiency; for example, Frankel & Romer (1999) found that financial development reduces energy intensity in OECD countries, and Ma et al (2022) established that a robust financial system enhances energy efficiency.
Hypothesis H3: Financial development has a positive effect on energy efficiency.
2.5.4 The impact of financial development on sustainable economic development
A commitment from the financial sector is essential for implementing a sustainable development strategy (Hunjra et al., 2022) The accessibility of wide money to banks enhances liquidity and facilitates funding for green projects, thereby supporting sustainable economic development (Byrd & Cooperman, 2018) As financial development progresses, it fosters credit activities that increase investments in environmentally friendly initiatives, aiding the ecological transition (Curtin et al., 2019) This growth in financial development positively impacts both macro and micro levels, contributing to national economic growth and improved per capita income Additionally, effective distribution of funding towards structural changes for green societies is crucial, highlighting the importance of macro- and micro-prudential regulations for sustainable economic development (Ma et al., 2022).
In today's world, individuals possess the financial capability to choose eco-friendly products, even at premium prices The relationship between financial development and environmental sustainability is complex; as economies grow, their energy demands typically increase, leading to higher private sector energy consumption However, financial development can also foster positive environmental outcomes by encouraging ethical corporate practices and supporting investments in sustainable innovations, particularly in developing nations This dual impact highlights the potential for financial growth to both challenge and enhance environmental sustainability efforts.
Financial development plays a crucial role in attracting high-quality foreign direct investment (FDI), which not only fosters technical advancements but also mitigates environmental degradation (Manu et al., 2022; Singhania & Saini, 2021) Research by Hunjra et al (2022) empirically demonstrates that financial development positively impacts economic sustainability Similarly, Ahmed et al (2021) affirm that financial support is essential for ensuring sustainable economic growth Hence, the proposed hypothesis is established.
Hypothesis H4: Financial development has a positive effect on sustainable economic development.
2.5.5 The moderating role ofnatural resources abundance
The relationship between natural resources and economic growth is contentious, with varying perspectives on their impact Badeeb et al (2017) highlight that natural resources, including minerals, arable land, and water, can drive sustainable economic growth Davis (1995) supports this by noting that resource richness positively influences economic development, particularly through mineral reserves and production levels However, Zhang & Li (2010) argue that the effect of natural resources on economic growth diminishes when accounting for resource prices and regional policies The resource curse hypothesis, as described by Sachs & Warner (1995), indicates that an abundance of natural resources can lead to paradoxical poverty and underdevelopment, a phenomenon confirmed by global studies Countries rich in resources often face delayed economic progress due to geopolitical instability and corruption, which contribute to unpredictable resource pricing and exploitation (Sachs & Warner, 1995; Abdulahi et al., 2019) Thus, the hypothesis suggests that while natural resources have the potential to foster growth, their actual impact is influenced by a range of socio-economic factors.
Hypothesis H5: Natural resources abundance moderates the effect of financial development on sustainable economic growth.
2.5.6 The moderating role of environmental regulations
Improving environmental information disclosure by enterprises is essential for creating a transparent market that fosters green finance, effectively reducing information asymmetry between supply and demand (Su et al., 2022) Environmental regulations play a crucial intermediary role, enhancing green energy efficiency in both polluting and clean enterprises, as stricter requirements encourage innovation in environmental performance (Popp, 2019) These regulations have direct effects through financial instruments and enforcement tools (Song et al., 2020) Moreover, stringent oversight of corporate environmental risks can mitigate financial risks for both businesses and banks, while government policies aim to protect the environment and reduce emissions without compromising economic growth (Ouyang et al., 2019) Consequently, environmental restrictions do not adhere to a "one size fits all" approach, allowing fossil fuel suppliers some flexibility.
Hypothesis H6: Environmental regulations moderate the effect of green finance on energy efficiency.