The energy consumption: the global contributions from financial development and institutions

Abstract

In a context of climate change and global warming, the literature paid more and more attention to the determinants of energy consumption. This article aims at examining the influences of the financial development and the institutional quality on the energy consumption in a global sample of 112 countries between 2002 and 2014. Our analysis is based on dynamic two-step system GMM estimations for three different energy consumption indicators—our findings are interesting. First, the financial development induces a higher energy consumption per capita; a higher energy consumption per output, and a lower renewable energy consumption. Second, the institutions have an insignificant positive influence on the energy use per capita and the energy use per output. Third, and this is our major contribution, the institutional quality can actually reverse the effect of the financial development. In other words, the effect of financial development on the energy use per capita is positive in weak institutional environment but it is negative when the latter is well developed. This article discusses these finding and their implications.