The role of banking sector performance for renewable energy consumption : a panel study for 124 countries between the years 1998 -2012

Sammanfattning: Renewable energy has in recent years become an important component of world energy consumption since it holds the characteristics of decreasing carbon oxide emissions while at the same time being able to meet the future increase in energy demand. To secure future universal access to modern energy, large investments in renewable energy technology are required. For these investments, financing needs to be assured which puts the banking sector at the front position when determining renewable energy consumption. To determine the drivers of renewable energy, researchers have investigated the role of both growth and financial development in relation to renewable energy consumption. The literature is however limited as no one has previously studied the role that the commercial banking sector holds for renewable energy consumption. This thesis estimates the impact of five banking sector performance variables (return on asset, market capitalisation, asset quality, managerial inefficiency and financial stability) on renewable energy consumption for a global panel consisting of 124 countries over the period 1998-2012 by using a two-step system-GMM panel model. It also considers three homogenous subpanels which are constructed based on the income group classification of sample countries (high-, middle-, and low-income countries). The results show statistical significant effects of banking sector performance on renewable energy consumption for the global panel as well as for the three income groups. For high income countries, an increase in bank size together with improved asset quality and managerial efficiency have positive effects on renewable energy consumption. For middle and low income countries, a high return on asset, an increase in bank size and financial stability are positive determinants of renewable energy consumption. The results in this thesis highlights the importance of a well-functioning bank sector to achieve the investment in renewable energy needed to meet future energy demand simultaneously as decreasing CO2 emissions.