Does financial development lower energy intensity?
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RESEARCH ARTICLE
Philip Kofi ADOM , Michael Owusu APPIAH, Mawunyo Prosper AGRADI
Does financial development lower energy intensity?
© Higher Education Press and Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract The growth-induced effects of financial development have been well-established in the empirical literature, as well as the significance of financial development to energy demand behavior. However, the empirical evidence on the relationship between financial development and energy intensity remains sparse in the literature. Given the multifaceted nature of the effects of financial development, the proposed relationship seems a complex one and warrants an empirical investigation. Using the case of Ghana, this study provides an empirical answer to the question: does financial development lower energy intensity? To provide solid grounds for either rejection or acceptance of the null hypothesis, this study performed several robustness checks. Generally, the evidence revealed that financial development lowers energy intensity. Further, the results revealed that the price of energy, trade liberalization and industry structure play significant roles. These results have important implications for the design of macro energy efficiency policies and the creation of a ‘Green Bank’. Keywords financial development, energy intensity, energy efficiency, Ghana
Received Apr. 11, 2018; accepted Oct. 5, 2018; online Apr. 25, 2019
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Philip Kofi ADOM ( ) Department of Development Policy, School of Public Service and Governance, Ghana Institute of Management and Public Administration (GIMPA), Achimota, Ghana E-mail: [email protected] Michael Owusu APPIAH Department of Finance, Business School, University of Cape Coast, Accra, Ghana Mawunyo Prosper AGRADI Department of Banking and Finance, University of Professional Studies, Accra, Ghana
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Introduction
Energy insecurity continues to pose serious macroeconomic problems to a number of countries in Africa, particularly those in sub-Saharan Africa. This is mainly due to the poor energy supply and growth in energy demand1)(caused by the rising middle-class population, bad energy-use practices, and urbanization) in the region. Consequently, power shortages remain a rampant phenomenon in these economies, causing employment and output losses [1,2]. The duration of power outages in sub-Saharan Africa remains the highest, which has compelled the majority of businesses in the region to depend on standby generators [3]. With the debt profile of these economies soaring2), the growth in capacity in the energy sector is likely to progress slowly. This signals a worrying situation for future energy security, especially given the projected future trajectories of demographic and economic growth dynamics in the region. On this score, investment in energy-efficient technologies is crucial [4–6]. Among other things, energy efficiency increases employment, lowers production cost, lowers energy intensity and improves energy security and environmental standards [4,7]. In Ghana, for example,
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