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Türsoy, T. Financial Development and Renewable Energy in the UAE. Encyclopedia. Available online: https://encyclopedia.pub/entry/18680 (accessed on 05 December 2025).
Türsoy T. Financial Development and Renewable Energy in the UAE. Encyclopedia. Available at: https://encyclopedia.pub/entry/18680. Accessed December 05, 2025.
Türsoy, Turgut. "Financial Development and Renewable Energy in the UAE" Encyclopedia, https://encyclopedia.pub/entry/18680 (accessed December 05, 2025).
Türsoy, T. (2022, January 24). Financial Development and Renewable Energy in the UAE. In Encyclopedia. https://encyclopedia.pub/entry/18680
Türsoy, Turgut. "Financial Development and Renewable Energy in the UAE." Encyclopedia. Web. 24 January, 2022.
Financial Development and Renewable Energy in the UAE
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This entry is adapted from the peer-reviewed paper 10.3390/su14031208

Financial development, FDI, and economic growth can significantly increase renewable energy consumption in the UAE. Therefore, it is essential to promote financial development in the UAE in order to avert the financial risks that undermine the stability of the financial markets and that negatively affect the REC. Furthermore, policymakers in the UAE should promote the concept of green finance and should provide more funds for investments in green energy for sustainable energy development in the UAE.

financial development UAE renewable energy

1. Real Income and Renewable Energy Consumption

Much research has considered the effects of real income on energy consumption. The empirical research on the connection between the consumption of energy and real income can be shown in four hypotheses: (i) The growth hypothesis (GH), which is accepted if there is a unidirectional causal connection between the consumption of energy and the real income [1]; (ii) The conservation hypothesis (CH), which is accepted if there is a unidirectional causal connection between the real income and the consumption of energy [2]; (iii) The feedback hypothesis (FH), which is accepted if there is a bidirectional causal connection between the real income and the consumption of energy; and (iv) The neutrality hypothesis (NH), which is accepted if there is no causal linkage between the real income and the consumption of energy [1]. The effects of the real income on the consumption of energy in recent years has drawn extensive attention. In this respect, the authors of [2] used the FMOLS model, and the findings show that a bidirectional association exists in 80 selected countries for the 1990–2007 period. Applying the ARDL model [3] showed that there is a positive interconnection between real income and NREC in the BRICS nations for the period from 1971–2010. The authors of [4] utilized the Granger causality model and explored the effects of the real income on NRC in the G7 countries for the 1960–2010 period. The outcomes confirm that the feedback hypothesis is valid in Japan; the conservation hypothesis holds in Italy; the growth hypothesis is relevant in Canada; and the neutrality hypothesis is relevant in France, the United States, and the United Kingdom. The authors of [5] suggest that economic complexity is a policy factor for overall energy transformation and renewable energy demand in India.
The authors of [6] utilized the Granger causality test and discovered a significant linkage between real income and REC in Turkey for the period from 1970–2006, and the findings show the existence of the feedback hypothesis in Turkey. In contrast, the authors of [7] found that the GDP is not related to REC for the period from 1990–2015. The authors of [8] used the data period from 1980–2012, and proved that the GDP is positively related to the REC for 11 MENA countries. The authors of [9] used the data period from 1990–2013 and demonstrate that the GDP is positively related to the REC for 29 OECD counties. The authors of [10] used the annual data period from 1980–2014, and proved that the economic growth positively affected the REC for G7 countries. The authors of [11] evaluated the impact of economic growth on the REC for the period from 1980–2012. The findings prove that there is a significant positive interconnection between economic growth and the REC in 30 sub-Saharan African countries. Recently, the authors of [12] explored the influence of economic growth on the REC in Croatia over the period from 2004–2014. The authors of [13] affirm that economic growth has a significant impact on renewable energy consumption in G7 countries. The outcomes affirm that economic growth led to an increase in REC over the studied period. The authors of [14] affirm a significant causal interconnection between economic growth and the REC in 26 selected countries over the period from 1990–2018. The authors of [15] affirm a significant positive association between economic growth and REC in the United States.

2. FDI and Renewable Energy Consumption

The link between FDI and NREC has attracted significant attention in the literature over the last few years. For instance, the authors of [16] evaluated the influence of FDI on the levels of GDP and NREC in 20 different selected countries. The authors affirm that FDI plays a significant role in energy intensity deduction. The authors of [17] explored the interaction among FDI and NRE in China over the annual periods from 1982–2012. The results affirm that FDI positively affected the levels of NREC in China over the tested period. The authors of [18] tested the link between FDI and the demand for energy for 27 countries in Africa. The findings reveal that FDI had a powerful influence on the demand for energy in the selected countries. There are a limited number of studies that test the impact of FDI on green energy. For instance, the authors of [19] utilized the ARDL test and affirm that FDI significantly affected the green energy demand in the UAE. The authors of [20] report that there is a significant linkage between FDI and REC for 20 emerging market nations. The authors of [21] utilized the ARDL model and examined the impact of FDI on REC in Turkey, China, India, Russia, South Africa, and Brazil. The findings show that FDI negatively affected REC. Recently, the authors of [22] investigated the interaction between FDI and REC in China over the period from 2000 to 2015. The findings prove the positive and powerful influence of FDI on the levels of REC in China. The authors of [23] tested the linkage between FDI and REC in Kazakhstan and Uzbekistan over the period from 1992 to 2018. The findings confirm that FDI positively affected the levels of REC in Kazakhstan and Uzbekistan.

3. Financial Development and the Consumption of Renewable Energy

Many empirical studies, e.g., [24][25][26], have stated that the development of the financial sector, including the development of the banking performance, accelerates the economic growth rate. The authors of [24] demonstrate that the provision of more funds by the banks to the markets stimulates and promotes consumption, investment, economic growth, and the demand for energy. The authors of [25] show that positive economic growth and financial development has strong links to the rates of growth, capital accumulation, and economic efficiency, which, in turn, lead to an increase in the consumption of energy. However, many empirical papers have studied the interactions between financial development, nonrenewable energy consumption (NEC), and renewable energy consumption (REC). Some empirical studies reveal that financial development increases NREC; the authors of [27] reveal that financial development positively affected the demand for energy in Malaysia over the tested period, from 1971–2009. The authors of [28] found that the higher development of financial levels led to higher NREC in European countries for the period from 1990–2011. The authors of [29] used the VECM approach and confirm that financial development positively affected the NREC in India over the period from 1970–2012. The authors of [30] affirm that financial development positively affected the levels of NREC in 22 selected emerging countries over the period from 1990–2006. The authors of [31] used the period from 1984–2014, and they affirm that financial development had a powerful impact on the NREC for 79 countries. The authors of [32] used annual panel data from 1990–2011, and they found appositive links between financial development and NREC for 65 selected countries.
There are a limited number of studies on the linkage between financial development and REC. The authors of [33] show that financial development significantly contributed to the REC in 22 emerging countries over the period from 1990–2010. The authors of [34] used the annual data for 30 countries over the period from 2000–2013, and they found that financial development positively affected the levels of REC. The authors of [35] affirm that financial development contributed significantly to the levels of REC in Russia over the period from 1990–2021. The authors of [36] affirm that financial development had a positive influence on REC in China, India, Brazil, and South Africa from 1990–2012. The authors of [37] confirm a positive interaction between financial development and REC in China for the period from 1992 to 2013. Recently, the authors of [38] demonstrated that financial development led to increases in the shares of REC in 28 European countries, over the period from 1990–2021. The authors of [39] utilized nonlinear autoregressive distributed lags and reveal that financial development had a statistically significant influence on REC in the United States over the period from 1975–2019.
In summary, there are several empirical studies that have explored the influence of financial development on energy consumption using different estimate methods. These studies affirm the significant role of financial development in renewable energy. However, the influence of financial development on renewable energy consumption (REC) has not been studied in the case of the UAE. For this purpose, the long- and short-run interactions among economic growth, FDI, financial development, and renewable energy consumption are explored by applying the new technique of bootstrap autoregressive distributed lag, along with Granger causality analysis, in the context of the UAE for the period from 1989–2019. To the best of our knowledge, no empirical research has evaluated the impact of financial development on the UAE’s renewable energy consumption.

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