Highlighting the connection between financial development and consumption of energy in countries with the highest economic freedom

This study explores the association that financial development, economic freedom, and the price of gasoline had with gasoline consumption in 28 countries with the highest economic freedom for the period 1996-2017. The ARDL analysis methodology was used to construct a heterogeneous dynamic panel to test the panel data. The Westerlund panel cointegration test was then performed to determine if the factors were cointegrated. Finally, we used the Dumitrescu-Hurlin panel causality test in order to develop effective policies. The results state that both financial development and the price of gasoline play an essential role in reducing the consumption of gasoline. Additionally, economic freedom is closely related to an increase in gasoline consumption. By employing the variable of the Global Financial Crisis (GFC), the robustness test shows the negative and statistically significant effect of the latter on gasoline consumption and confirms the main findings. Therefore, the GFC played a crucial role in changing the economic plans of the countries with high levels of economic freedom. This suggests that these countries should reinforce financial development to generate green innovations. Further important policy implications for the 28 countries with the highest economic freedom are provided at the end of the paper.