The asymmetric dilemma of renewable energy, financial development, and economic growth: fresh evidence from Pakistan

According to economists, rapid economic growth depends on the active energy system of any country. Through financial development, the latest trend of globalization applies pressure on energy consumption, which eventually validates growth in the economy. Therefore, the role of financial development and renewable energy consumption on economic growth is still being questioned. This paper contributes to this issue by raising concerns about the possible asymmetric links among financial development, renewable energy, and economic growth along with capital and labor. Applying a nonlinear autoregressive distributed lag model, our paper demonstrates that neglecting the involvement of nonlinearities leads to confusing conclusions. Results show that variables of interest have asymmetric impacts in short- and long-runs. Our analysis shows that short- and long-run impacts of renewable energy consumption and financial development on growth vary significantly. Notably, this study finds that renewable energy consumption has a positive and significant impact on economic growth in the short- and long-runs, and financial development has a strong, asymmetric, and positive effect on economic growth in the short and negative effects in long-run. The findings also have important implications for policymakers as well as investors in Pakistan's energy sector.

Automated summary

This study examines the asymmetric impacts of financial development and renewable energy consumption on economic growth using a nonlinear autoregressive distributed lag model. The findings suggest that financial development has a strong positive effect on short-term economic growth, but a negative effect in the long-run. Conversely, renewable energy consumption has a positive and significant impact on both short- and long-term economic growth.