The Renewable Energy Kuznets Curve (RKC) Hypothesis: Theoretical Development and Empirical Evidence on BICS Countries
Abstract
Energy demand has become a significant challenge worldwide, and leading economies are seeking the most effective alternatives. Also, a well-developed financial system is needed to meet this energy demand. The association between financial development and renewable energy share (RES) has sparked a newly attractive research direction. The current study estimates this direction in the BICS (Brazil, India, China, and South Africa) nations from 2000 to 2023 using Ridge Regression (RR) and the Baltagi-Wu Locally Best Invariant (LBI) tests. Undoubtedly, a single financial measure may not express the response of the overall financial sector; therefore, this study considers six financial proxies, i.e., loans by depositors (FDB), broad money (BM), loans by financial corporations (FC), financial depth (FDP), financial efficiency (FEF), and financial stability (FST). The results indicate that financial proxies, such as FDB, BM, and FC, negatively affect RES. Similarly, financial depth and efficiency play an inverse but insignificant role in promoting RES. Finally, financial stability plays a positive but insignificant role in the explained variable. In addition, socio-institutional factors describe mixed responses across the different models. Finally, the core concept regarding the RKC hypothesis remains invalid for BICS economies due to its insignificant role. However, core implications are being proposed to increase the renewable energy share in overall energy consumption.