Energy transition calculated as renewable energy consumption and cleanwater and sanitation calculated as people using safely managed drinking water and sanitation services are dependent
INTRODUCTION
Research motivation
Clean water and sanitation are essential for health and happiness, particularly amid rapid population growth and urbanization, which are driving increased water demand from agriculture, industry, and energy sectors This challenge aligns with Sustainable Development Goal 6 (SDG 6), highlighting the worsening water and sanitation crisis Currently, approximately 2 billion people lack access to safe drinking water, and around 5.4 billion do not have safely managed sanitation services, as reported by UN-Water.
Over 10 million people in urban areas of the Indus and Ganges watersheds are currently experiencing both permanent and seasonal water scarcity (He et al., 2021) By mid-century, the population in these Asian water tower regions is expected to increase by over 70 million (Jones and O'Neill, 2016), exacerbating existing challenges related to water shortages (Pritchard, 2019; Lutz et al., 2022) In 2017, global estimates indicated that only 47% of urban residents in countries with available sanitation data had access to safely managed sanitation (UNICEF and WHO, 2019) Furthermore, sanitation infrastructure in many cities in the Global South has failed to keep pace with rapid population growth (Berendes et al., 2018; Mara and Evans, 2017) As a result, urgent and drastic measures are necessary to address these pressing issues, despite some progress made towards the Sustainable Development Goals (WHO).
Between 2016 and 2020, the global population with access to clean water rose from 70% to 74%, while environmental sanitation services increased from 47% to 54%, and personal hygiene practices improved from 67% to 71% Despite these gains, a recent WHO and UNICEF report warns that billions may still lack safe drinking water, sanitation, and hygiene services by 2030 unless efforts are significantly intensified Water is essential for life and sustainable development, and inadequate quality and sanitation contribute to diseases like diarrhea and cholera, particularly affecting vulnerable populations As countries strive for improvement and financial growth, the demand for water is rising Economic development plays a crucial role in enhancing access to water and sanitation services by alleviating poverty and reducing corruption, enabling communities to invest in essential infrastructure.
In today's globalized world, the integration of countries into the global market has significantly heightened economic activities, leading to increased energy consumption and making energy a crucial sector globally The reliance on non-renewable energy sources, such as coal, crude oil, and natural gas, poses serious environmental risks due to rising carbon emissions, prompting a shift towards renewable energy for sustainable development Traditional energy sources face challenges like price volatility, dependence, resource scarcity, and environmental concerns, compelling nations to transition to green energy solutions While economic growth continues to rise, it often exacerbates climate change, which, along with natural disasters, threatens energy supplies and access to clean water As a result, energy transition has become a focal point for policymakers, although the pace of this transition varies across different economies Additionally, financial development, characterized by increased foreign direct investment, enhanced credit supply, and stock market growth, plays a vital role in supporting these energy transitions.
According to Chang (2015), financial development significantly influences the demand for renewable energy by enabling financial institutions and advanced capital markets to offer loans and capital financing for energy projects, thereby enhancing the capacity for regeneration.
A well-developed financial system can enhance financial resources for the renewable energy sector at reduced costs, leading to increased investment opportunities for eco-friendly initiatives (Anton & Nucu, 2020) Research by Wu & Broadstock (2015) indicates a significant positive correlation between financial development and renewable energy consumption across 22 emerging markets from 1990 to 2010 Despite this, there is a scarcity of studies examining the connection between financial development and renewable energy consumption Shah et al (2023) highlight the importance of population, waste management, and environmental policies in green electricity production, yet the relationship between energy transition and the financial sector remains unexplored Furthermore, the unique influence of financial indicators on the energy transition process is an urgent area that requires more research.
Industrial processes negatively affect the environment, leading to significant water pollution Research indicates that financial development indirectly influences water consumption (Zaman et al., 2012) Additionally, economic globalization has been linked to a decrease in the percentage of the population with access to improved sanitation (Fotio & Nguea, 2022).
Financial inclusion is essential for improving access to basic drinking water and sanitation services Research indicates that financial development positively influences access to these vital resources for both urban and rural populations, highlighting its significant impact on the overall community (Immurana et al., 2022; Tadadjeu et al., 2023).
Previous studies have shown mixed conclusions regarding the impact of finance on clean water and sanitation However, the specific influence of financial indicators on access to drinking water and sanitation remains unclear Research focusing on financial aspects related to sustainable development goals in this sector is still emerging Unlike traditional studies that utilized the FD index, this analysis employs the FID, FIA, and FIE indexes to compare and evaluate financial development factors.
This study distinguishes itself from existing research by focusing on three key aspects: it examines how financial development influences access to clean water and sanitation across various countries Additionally, the authors investigate the relationship between financial indicators and the challenges posed by the energy transition, which is occurring at varying rates in different economies Lastly, the research aims to assess the impact of financialization on the energy transition process within the selected study areas.
Study will comment on the impact of three financial factors including efficiency, depth and access to finance on the energy transition and access to clean water and sanitation.
Research objectives
This research aims to explore the impact of financialization and the circular economy on clean water, sanitation, and energy transitions It seeks to offer valuable insights and propose policy recommendations that enhance financialization and the circular economy while improving access to clean water, sanitation, and energy solutions.
- Does financialization have a significant impact on the Sustainable Development Goal number 6: clean water and sanitation?
- Docs financialization and the circular economy have a significant impact on the energy transition?
- Does the circular economy have a significant impact on the energy transition?
Research methodology
This study employs a quantitative analysis of unbalanced panel data using STATA version 16, focusing on applied econometric methods We began with pooled OLS, followed by the fixed effects model (FEM) and random effects model (REM), utilizing the Hausman specification test to identify the most appropriate model To address issues of endogeneity, heteroscedasticity, and autocorrelation, we subsequently applied the two-step system GMM (SGMM) estimator and feasible generalized least squares (FGLS) methods.
Object and scope of research
This research is conducted to examine the influence of fmancialization and circular economy on energy transition and clean water and sanitation in 45 selected countries.
The research utilized a global sample of 45 countries from 2013 to 2022, although certain countries were excluded due to data limitations, which affected the overall study results.
Research novelty
The study titled "The Role of Financialization and the Circular Economy in Achieving the Energy Transition and Sustainable Development Goals (SDGs) 6: Evidence from Selected Countries" highlights substantial advancements by incorporating new dimensions into its analytical framework It utilizes the Financialization index (FD) from the International Monetary Fund (IMF), grounded in research conducted by Sahay et al., to enhance understanding of the relationship between financialization and sustainable development.
The Financial Development Index, published by the IMF, provides a comprehensive measure of a country's financial development based on three key aspects: depth, efficiency, and accessibility of financial markets and institutions (Greenwood and Jovanovic, 1990; Bencivenga and Smith, 1991) This index allows for a more nuanced analysis of financial development compared to traditional metrics, utilizing indicators such as Financial Institution Depth (FID), Financial Institution Accessibility (FIA), and Financial Institution Efficiency (FIE) as outlined by Tadadjeu et al (2023) Furthermore, research on the circular economy's impact on energy transition has been limited, with studies like Gozgor et al (2020) highlighting the positive effects of economic growth and globalization on renewable energy demand, while Padhan et al (2020) noted its negative implications for renewable energy consumption This article aims to bridge this gap by exploring the synergistic relationship between financialization and circular economy activities in achieving the Sustainable Development Goals (SDG), particularly focusing on SDG 6, which addresses clean water and sanitation Overall, this research provides a timely contribution to understanding the complex interplay between finance, the circular economy, and sustainable development.
Research contribution
This research highlights the significant relationship between financialization and Sustainable Development Goal 6, focusing on clean water and sanitation, which is a global priority It also demonstrates how financialization and the circular economy influence the energy transition By addressing existing research gaps, the study introduces new indicators—financial institution depth (FID), financial institution accessibility (FIA), and financial institution efficiency (FIE)—to analyze financial development factors The findings reveal that the circular economy plays a crucial role in the energy transition and elucidate how these financial indicators affect access to clean water and sanitation in the countries examined.
Research structure
The study is organized into five sections: Section 1 presents the research topic, objectives, methodology, and its contributions; Section 2 offers a critical review of the theoretical framework and related studies; Section 3 details the research model, data, and econometric methods used; Section 4 showcases the empirical results and discussions; and Section 5 concludes with the research implications, limitations, and suggestions for future research.
The study underscores the critical need for clean water, adequate sanitation, and sustainable energy amid increasing urbanization and population growth Despite progress, many individuals still lack access to essential resources, and the transition to sustainable energy faces challenges Utilizing advanced econometric analysis across 45 countries, the research examines the impact of financialization and the circular economy on these issues By incorporating additional metrics such as the Financial Development Index and indicators from financial institutions, it enhances understanding of their roles in sustainable development The research framework is meticulously crafted to offer insights, address knowledge gaps, and provide policy recommendations, significantly contributing to the discourse on finance, the circular economy, and sustainability.
LITERATURE REVIEW
Concept definition
Financialization, recognized since the late twentieth century, is a crucial factor transforming modern economic landscapes It highlights the increasing significance of finance within the overall economic framework This phenomenon involves a complex interplay of processes, leading to a fundamental restructuring of economic systems characterized by the growing integration of financial markets, instruments, and logics into global capitalism.
Financialization represents a shift from traditional industrial development to the dominance of financial metrics as key drivers of economic outcomes This concept includes various financial trends and indicators that significantly impact economic decision-making, resource allocation, and wealth distribution Rather than being secondary to economic processes, finance now plays a crucial role in shaping contemporary capitalism, influencing production relationships, investment strategies, and consumption behaviors.
Financialization represents a significant shift in capital accumulation, prioritizing financial channels over traditional wealth development methods As noted by Krippner (2005), finance has emerged as the primary means of accumulation, with profits increasingly generated through financial intermediation, speculative investments, and capital market activities, rather than from productive enterprises or physical asset creation This transformation highlights the growing role of financial markets in wealth creation, redistribution, and concentration, leading to profound implications for inequality, social cohesion, and economic stability.
Financialization is a complex phenomenon that is transforming contemporary capitalism by placing finance at the core of global economic systems This shift signifies a significant restructuring of economic relationships, where financial priorities overshadow traditional wealth creation methods As financialization influences various aspects of social life, it creates intricate dynamics that can significantly affect economic stability, social equity, and democratic governance Understanding the diverse implications of financialization is crucial for addressing its impacts and developing strategies for more equitable, resilient, and sustainable economic futures.
The circular economy has transitioned from a novel idea to a fundamental aspect of sustainable development and economic growth Central to this concept is the principle of "reduce, reuse, and recycle," which signifies a shift from traditional linear production and consumption models to closed-loop systems that prioritize resource efficiency and waste reduction.
The circular economy functions on various scales, including micro, meso, and macro levels At the micro level, it focuses on transformative practices involving individual products, companies, and consumer behaviors, promoting sustainability and responsible resource management Companies are urged to redesign products for longevity and recyclability, while consumers are empowered to make informed choices that emphasize durability, repairability, and eco-friendliness.
The meso level of the circular economy focuses on creating eco-industrial parks and collaborative networks that optimize resource flows, reduce waste, and enhance stakeholder relationships These parks act as innovation hubs, encouraging industrial symbiosis and resource sharing to maximize resource efficiency and minimize environmental impact.
The circular economy aims to foster sustainable development by balancing environmental care, economic growth, and social equity for the benefit of current and future generations It seeks to separate economic advancement from resource depletion and environmental harm, providing a route to a regenerative and inclusive economy that honors planetary limits and enhances human well-being.
The circular economy represents a transformative approach to rethinking economic production and consumption, emphasizing circularity, sustainability, and resilience By adopting principles of reducing, reusing, and recycling, societies can unlock opportunities for innovation, collaboration, and equitable wealth distribution, paving the way for a more sustainable and prosperous future for everyone.
The sustainable energy transition is crucial for achieving long-term growth and addressing climate change It involves a comprehensive transformation of energy systems through initiatives that improve building practices, energy usage, and transportation infrastructure This transition aims to boost energy efficiency, reduce energy demand, and shift from fossil fuels to renewable energy sources like solar, wind, and hydroelectric power.
The transition to sustainable energy goes beyond technological innovations; it requires comprehensive changes across various societal dimensions This includes advancements in technology, shifts in consumer behavior, alterations in market dynamics, updates to institutional frameworks, and redefined business operational models According to Geels et al (2016), achieving a sustainable energy future demands a unified approach to realign societal norms, policies, and economic incentives that support renewable energy adoption and lower carbon emissions.
The transition to sustainable energy necessitates overcoming institutional barriers, mobilizing financial resources, and fostering public-private partnerships to expedite the adoption of renewable technologies This process involves establishing supportive policy frameworks, eliminating fossil fuel subsidies, implementing carbon pricing mechanisms, and promoting technology transfer and capacity-building in developing nations By cultivating an environment conducive to renewable energy investment and innovation, policymakers can harness the full potential of sustainable energy solutions, driving the shift towards a low-carbon future.
The sustainable energy transition is essential for creating a stronger, fairer, and environmentally friendly energy system By embracing energy efficiency, renewable energy sources, and low-carbon transportation, societies can effectively address climate change, enhance energy security, and foster equitable economic growth Achieving the full potential of this transition requires collaboration, political leadership, and ongoing investment across all sectors Together, with a steadfast commitment, we can ensure a brighter and more sustainable future for generations to come.
Sanitation and access to clean water are essential for modern livelihoods, serving as critical components of public health and societal well-being They encompass adequate hygiene practices and the availability of clean water sources, which are vital for preventing waterborne diseases, promoting dignity, and supporting socio-economic development.
Despite notable advancements in global development, access to clean water and sanitation remains unequal, with many residents facing significant barriers Assessments by various organizations underscore ongoing disparities and systemic issues that hinder universal access to these vital services Although improvements in clean water availability have been achieved, millions of people around the world continue to lack safe and reliable drinking water.
Theoretical framework
This article begins by exploring the theoretical foundations of the Environmental Kuznets Curve (EKC) before delving into empirical research that tests its validity Initially, Grossman and Krueger (1991) utilized three proxies—SO2, suspended particles, and dark matter—to investigate the EKC theory, which has since been examined with various pollution indicators The literature categorizes pollution levels into two main types: global air pollution, primarily CO2 emissions, and local pollutants such as suspended particulate matter, SO2, NOx, and carbon monoxide, along with urban air quality concerns Additionally, studies have addressed water contamination issues, including heavy metals and pathogens Overall, the literature emphasizes the relationship between macroeconomic performance and pollution emissions to evaluate the EKC hypothesis.
Figure I A Summary of the EKC hypothesis
Source: Yandle, Bhattarai and Vijayaraghavan, (2004)
Research into the environmental impacts of economic performance gained momentum following Grossman and Krueger's pivotal 1991 study, which highlighted the need to assess macroeconomic indicators alongside environmental degradation This field of study primarily investigates the nonlinear relationship between economic growth and pollutant emissions, often referred to as the Environmental Kuznets Curve (EKC) hypothesis, building on Kuznets' 1995 work that explored the connection between income inequality and development.
During the initial phase of the Environmental Kuznets Curve (EKC), economies often prioritize industrialization and job creation over environmental concerns, embodying the notion of "grow first, clean up later" (Sadik-Zara & Gatto, 2023) Developing nations may relax trade and environmental regulations to stimulate economic growth, which alters the economic structure and accelerates production methods, leading to significant environmental degradation due to increased energy and resource consumption (Grossman and Krueger, 1991) Eventually, as communities demand a cleaner environment for improved quality of life, governments respond by implementing environmental regulations (Selden, 1993).
To reduce pollution levels, the development of clean technologies and energy sources is essential This stage may also witness a structural shift where cleaner industries replace more polluting sectors Additionally, economic growth can stimulate research and development efforts focused on replacing harmful technologies with environmentally friendly alternatives Consequently, both compositional and technological impacts can lead to significant environmental benefits stemming from economic growth.
In today's rapidly evolving global landscape, environmental protection is gaining increasing focus and importance As nations strive for progress, sustainable development goals have emerged as shared objectives, guiding countries toward a more responsible and eco-friendly future.
Figure 2 A summary of the Sustainable Development
Sustainable development, much like tourism-specific guidance, lacks a universally accepted definition, with over 70 alternative interpretations proposed (Steer & Wade-Gery, 1993) This diversity arises from various fields using the term in different contexts, leading to distinct concepts and biases (Heinen, 1994) While some view sustainable development as an ideal (Redclift, 1987; Worster, 1993), its ambiguity can result in varied interpretations of its goals (Lélé, 1991) Additionally, debates persist regarding the compatibility of resource conservation with economic development, with some critics considering sustainable development a conditional state (Friend, 1992) The technocentric approach, which emphasizes economic growth and resource substitution, starkly contrasts with neoclassical economics and a more traditional ecological perspective, advocating for an eco-centered approach that challenges even the sustainable exploitation of natural resources (Turner, 1993).
The concept of sustainable development serves as a mediator between opposing viewpoints, providing a platform for diverse concerns to be addressed While finding a definitive answer for long-term development remains challenging, Lélé (1991) suggests that sustainable development can be analyzed by examining its individual components This approach allows for the establishment of clear boundaries between distinct goals or processes, positioning sustainability as a strategic technique for development.
Sustainable development combines development and sustainability, allowing for a meaningful exploration of sustainable development theory This integration simplifies the complex political, economic, cultural, and ecological processes involved in sustainable development However, it falls short of offering a solid basis for understanding the core concepts and objectives, as well as their applicability to specific tourism development scenarios.
Environmental economics, emerging in the 1950s and 1960s and introduced to China in the late 1970s, focuses on the cost-effective distribution, use, and protection of resources Central to this field is the value theory of environmental resources, which asserts that their value is an objective reality, independent of human influence This discipline conducts scientific assessments of these resources and integrates ecological and environmental systems into economic models By evaluating the effects of environmental changes on economic analysis, environmental economics highlights the importance of ecological resources in enhancing quality of life and supporting the production of goods.
Empirical evidence
2.3.1 The effect of financialization on Clean water
Overall, financialization has a positive impact on access to clean water Using sample data from 25 Sub-Saharan countries for the period from 1996 to 2012, Marson
A survey by Savin (2015) revealed a non-linear relationship between financialization and access to clean water, indicating that while financial success improves water access, excessive capital recovery can hinder it This aligns with previous research highlighting the risks of corporatization in the water sector Similarly, Bundi (2015) found a correlation between financial inclusion and access to clean water and sanitation in Kenya, where public-private partnerships have gained traction to enhance public service delivery The study on public-private partnerships emphasized the importance of synergy among partners, revealing a significant positive correlation (0.894) between partnership performance and synergy Additionally, Ezenwaji & Otti (2013) examined women's associations in Nigeria that successfully raised funds for water and sanitation projects through loans, empowering women and addressing the demand-supply gap in the sector.
A study by Fotio & Nguea (2022) analyzed the effects of globalization on access to clean water and sanitation in Africa from 1990 to 2015, revealing that overall globalization enhances access to these essential services while widening the gap between urban and rural areas The research indicates that social globalization positively impacts access to safe drinking water and sanitation for both urban and rural populations; however, it exacerbates the urban-rural divide in sanitation access without affecting disparities in drinking water In contrast, economic globalization appears to decrease access to better sanitation, with minimal effects on drinking water access and urban-rural differences in these services The study also highlights discrepancies between de facto and de jure components of globalization, prompting a discussion on policy implications.
Immuarana et al (2022) conducted a study across 33 countries from 2004 to 2018 to explore the relationship between financial inclusion and access to improved sanitation and drinking water Their research aims to provide comprehensive empirical evidence on how financial inclusion impacts access to these essential services in Africa The findings indicate that financial inclusion significantly enhances access to basic drinking water and sanitation services, suggesting that increasing financial inclusion can be an effective strategy for improving these critical resources in the region.
And to have a more comprehensive view, Tadadjeu & Djeunankan (2023) conducted a more general study Using a sample of 106 developing countries between
Between 2000 and 2019, a study revealed that financial development plays a crucial role in bridging the access gap to essential services like water and sanitation for urban and rural residents Research shows that financial markets and institutions, along with their key components—financial depth, access, and efficiency—significantly improve access to these vital services These findings underscore the importance of developing and implementing policies that promote financial growth To strengthen the financial system, it is recommended to prioritize the expansion of financial institutions due to their substantial impact.
Research indicates that financial development positively influences sanitation and access to clean water, yet studies on underdeveloped countries remain limited A study by Immurana et al (2022) in Ghana utilized data from the 7th wave of the Ghana Living Standards Survey to explore the link between financial inclusion and sanitation practices The findings revealed that greater financial inclusion correlates with a reduced risk of open defecation and toilet sharing among households, with formal financial inclusion proving more beneficial than informal options To combat open defecation and improve sanitation, enhancing formal financial inclusion is essential Similarly, Zaman & Ahmad (2011) examined data from Pakistan (1975-2009) and found that industrialization and financial development negatively affect natural resources and clean water availability Their study underscored the critical role of water in economic growth, noting that resource depletion can hinder development, while industrial activities contribute to water pollution Financial growth may further influence water use by driving investment away from polluting industries.
2.3.2 The effect offinancialization on Energy Transition
The global shift towards sustainable and renewable energy is crucial for addressing climate change and the depletion of fossil fuels As nations work to meet their energy transition objectives, the influence of financialization on this process is becoming more significant Consequently, research has been undertaken to assess the effects of financialization on energy transitions, aiming to offer solutions for countries worldwide.
Irfan et al (2023) investigated the impact of financial development on energy transition in E7 and G7 countries, revealing that mineral markets are vital for achieving low-carbon electricity generation in G7 nations While financial development negatively affects energy transition in G7 countries, it shows minimal impact on E7 countries The study employed augmented mean group (AMG) and common correlated effect mean group (CCEMG) estimators to validate its findings, which offer valuable policy recommendations for stakeholders aiming to enhance the shift towards renewable energy and low-carbon growth.
A study conducted from 1996 to 2020 across 23 advanced and developing countries reveals that higher financial efficiency encourages long-term investments in renewable energy, while decreases in financial efficiency hinder such investments, with varying effects in different regions The research emphasizes the importance of fostering public-private financial collaborations to enhance renewable energy investment opportunities Additionally, a study on renewable energy consumption in sub-Saharan Africa highlights the significance of human capital and GDP per capita as critical policy factors, supporting a U-shaped relationship between GDP and energy consumption This underscores the need for improving GDP, enhancing human capital, and reforming financial and institutional frameworks to facilitate energy transition Furthermore, an investigation of 20 mineral-exporting countries indicates that while mineral markets accelerate the energy transition towards sustainability, financial markets negatively impact sustainable energy in both the short and long term Overall, the findings suggest that renewable energy, economic development, and foreign direct investment foster cleaner energy, while urbanization and carbon emissions intensity adversely affect the energy transition.
Financial development is also proven to have a positive impact on the energy transition For example, Liu et al., (2023) tested empirically, using information from
Between 2000 and 2020, research has highlighted the significant impact of financial developments on the renewable energy transition Studies utilizing the cross-section autoregressive distributed lag (CS-ARDL) model reveal that investments in green energy, advancements in financial structures, and stringent environmental regulations collectively foster long-term sustainable energy shifts Notably, the interplay between financial development and environmental policies amplifies their individual effects, directing financial resources towards renewable energy initiatives In China, Liu et al (2023) found that green economic development incentives, including transformational insurance and green credit, effectively reduce carbon emissions and facilitate the transition to low-carbon economies Ullah et al (2023) further emphasized the positive correlation between financial development, energy innovation, and greenhouse gas emissions reduction in G-7 nations, advocating for policies that promote clean technology and education Similar findings by Naqvi et al (2023) indicate that financial market development enhances green energy transitions and environmental quality, while Wang et al (2023) identified a long-term beneficial relationship between financial efficiency and renewable energy use in OECD countries Lastly, Zhang et al (2023) confirmed that financial development in advanced economies promotes renewable energy adoption and mitigates environmental degradation, underscoring the importance of innovative technologies and foreign direct investment in achieving sustainability goals.
Recent studies indicate that financial development significantly influences the transition to renewable energy, benefiting both developed and developing nations Mukhtarov & Mikayilov (2023) found that financial development and economic growth support the adoption of renewable energy, suggesting that enhancing current policies can lead to better well-being and sustainable development By increasing investments in renewable energy projects, financial institutions can help Polish residents access modern energy services while decreasing fossil fuel dependence Similarly, Alsagr (2023) analyzed 23 advanced and developing countries from 1996 to 2020, revealing that greater financial efficiency encourages long-term investments in renewable energy The research highlights that while increased financial efficiency boosts renewable energy investments, a decline in efficiency can hinder them, emphasizing the need for stronger public-private financial collaborations to enhance investment opportunities in renewable sources.
Financial development plays a crucial role in the energy transition and the adoption of renewable energy sources, though its impact varies significantly across countries and regions A study by Qin et al (2023) involving 214 countries highlights that income disparities influence the effectiveness of financial development on green energy outcomes High-income regions benefit more from well-established financial systems that provide specialized financing for green investments, while in low- and lower-middle-income areas, underdeveloped financial institutions hinder the transition to renewable energy due to limited funding Additionally, research by Wang et al (2023) indicates that economic complexity and resource availability positively affect renewable energy, although financial globalization shows a neutral long-term and negative short-term impact on the sector Wei & Wu (2023) further emphasize that in regions like the South, bank intermediation and capital markets are vital for fostering renewable energy technologies, with foreign direct investment (FDI) enhancing innovation in this field Overall, government policies that signal positive support can lead to increased financial capital for renewable energy, creating diverse financing opportunities for businesses.
2.3.3 The effect of Circular economic on Energy Transition
Countries worldwide are increasingly focusing on sustainable and green development goals, with the circular economy emerging as a key objective This raises the question of whether the circular economy positively or negatively influences the energy transition process in various nations To explore this, studies have been conducted, including research by Shah et al (2023), which analyzed data from 2000 to present to provide objective insights into the impact of the circular economy on energy transitions.
A study conducted in 2020 explored the relationship between waste management and quality of life, highlighting their impact on renewable energy generation (REG) The findings indicated that population, waste management, and environmental policy significantly influence REG, while quality of life and natural resource usage do not have a notable effect Additionally, the study revealed that environmental policy plays a crucial role in promoting renewable energy growth Research by Ogunjuyigbe et al (2017) further examined the application of a circular economy in Nigeria's energy transition, identifying key drivers of REG, including waste management, quality of life, environmental policy, natural resource usage, and population growth The current study employs various estimation methods to assess these factors in 15 waste-recycled economies from 2000 onwards.
The findings from 2020 highlight that population, waste management, and environmental policy significantly influence renewable energy generation (REG), while quality of life and natural resource usage do not Additionally, the role of environmental policy in waste management, quality of life, and natural resource usage is crucial for promoting renewable energy growth The study suggests that environmental policy is the most effective strategy for energy generation It also identifies INC technology as having the highest levelized cost of energy (LCOE), making it less cost-effective across various locations This research serves as a valuable resource for investors, policymakers, and scientists, guiding decision-making towards optimal investments in Nigeria's waste-to-energy projects.
Both developed and developing countries are increasingly recognizing the benefits of a circular economy Research conducted by Safieddin et al (2023) in Khuzestan Province, Iran, highlighted the region's potential to generate approximately 17,678 GW of bio-power annually from municipal solid waste (MSW), which could prevent around 6.7 thousand tonnes of CO2eq emissions and yield an estimated income of 167 thousand USD Utilizing a GIS-based Fuzzy-AHP approach, the study identified that nearly 30% of the province's land is suitable for MSW power plants, providing essential data for government strategies aimed at reducing greenhouse gas (GHG) emissions Additionally, a study by Rajacifar et al (2017) assessed the electricity generation potential from MSW in Iran using an integrated solid waste management system that includes anaerobic digestion, incineration, and pyrolysis-gasification Their findings indicated that Iran could generate between 5,005.4 and 5,545.8 GWh of power from MSW annually, resulting in a GHG emission reduction of approximately 3,561 to 4,844 thousand tons, contributing to Iran's goal of a 4% reduction in GHG emissions by 2030 These insights can serve as a model for other developing nations striving to improve their MSW management practices.
Research gap
A literature review indicates that while global scholars have begun to explore the impact of financialization on energy transition, clean water, and sanitation, significant research gaps remain Most studies have relied on the financial development index from the International Monetary Fund (IMF) to measure financialization, which lacks in-depth analysis To address this, the authors propose utilizing indicators such as financial institution depth (FID), financial institution accessibility (FIA), and financial institution efficiency (FIE) for a more comprehensive evaluation, as suggested by Tadadjeu et al (2023) Additionally, the role of the circular economy in energy transition has been underexplored, despite findings by Gozgor et al (2020) that link economic growth and globalization to increased renewable energy demand.
The negative impact of economic globalization on renewable energy consumption has been highlighted in recent studies, underscoring the need to explore the relationship between the circular economy and the energy transition process, a topic that has previously received limited academic attention This research aims to address this gap by examining how financialization and circular economy initiatives can work together to advance the Sustainable Development Goals (SDGs), particularly focusing on SDG 6, which prioritizes clean water and sanitation Ultimately, this study provides a timely and significant contribution to understanding the complex interactions between finance, the circular economy, and sustainable development efforts.
Research hypothesis
2.5.1 Research the impact of financialization on sustainable goal number 6: clean water and sanitation
Financialization refers to the global trend of countries prioritizing the development of finance and financial markets to achieve long-term goals and enhance the welfare of their citizens (Sawyer, 2013) Many nations have recognized the positive effects of transforming their financial institutions, leading to improved quality of life However, in some cultures, financialization may not be the primary objective for enhancing living standards due to differing societal beliefs and practices Research indicates a positive correlation between financialization and access to clean water and sanitation (Folio & Nguca, 2022) Additionally, studies by Immurana et al (2022) demonstrate that financial inclusion positively impacts access to these essential services Financialization enables the mobilization of diverse investment sources to fund water and sanitation projects, utilizing innovative financial instruments such as bonds, loans, and public-private partnerships This approach not only addresses funding gaps but also enhances project efficiency and resource allocation Furthermore, it promotes transparency, accountability, and risk management, crucial for the sustainability of water and sanitation initiatives that meet community needs and protect public health and environmental quality.
Hl: Financialization has a positive effect on clean water and sanitation.
2.5.2 The impact of financialization on energy transition
Financial growth is crucial not only for improving the quality of life and welfare of citizens but also as a foundation for advancing various sectors and achieving sustainable development As countries prioritize financial development, they encounter additional challenges, such as environmental pollution, prompting a shift towards energy transition and green energy solutions Research by Liu et al (2023) highlights the positive influence of financial development on energy transition and renewable energy adoption Similarly, Naqvi et al (2023) found that G7 countries benefit from financial development in their energy transition efforts, as increased financial resources facilitate the shift to sustainable energy However, some nations face obstacles in achieving energy transition despite their aspirations for financial growth, often due to rigid institutions or regional challenges that hinder progress This leads to the formulation of the following hypothesis.
H2: Financialization has a positive effect on energy transition.
2.5.3 The impact of the circular economy on the energy transition
The circular economy emphasizes the principles of "reduce, reuse, and recycle," marking a shift from a linear production model to one focused on resource efficiency and waste reduction (Kirchherr et al., 2017) In response to global challenges such as climate change, reliance on imported fuels, and increasing energy demands, significant efforts have been made to adopt green energy systems (Shah et al., 2023) However, formulating effective policies for sustainable growth remains complex Research indicates that the circular economy positively influences energy conversion and the transition to renewable energy, as demonstrated in studies by Shah et al (2023) and Ogunjuyigbe et al (2017) These studies reveal a consistent finding across various countries: the circular economy enhances renewable energy usage and supports energy transitions by optimizing resource management and reducing reliance on finite energy sources By promoting waste reduction and recycling, the circular economy lowers energy consumption and greenhouse gas emissions associated with traditional production methods Additionally, it fosters innovation and investment in renewable technologies, creating new market opportunities centered on sustainable practices Ultimately, the circular economy presents a holistic approach to energy transition, addressing resource constraints and environmental challenges while driving economic growth Nonetheless, some authors acknowledge a potential negative correlation between the circular economy and energy transition, leading to the development of further hypotheses.
H3: Circular economy has a positive effect on energy transition.
This chapter explores the relationship between financial development and its impact on the energy transition, as well as access to clean water and sanitation It incorporates data from previous research to demonstrate how financial indicators and the circular economy influence these areas Additionally, the chapter identifies gaps in prior studies and highlights ongoing limitations By addressing these shortcomings, we aim to present new insights and formulate relevant hypotheses to enhance understanding of these critical issues.