Testing the effects of banking development, economic growth and foreign direct investment on renewable energy in South Africa

Abstract

The world's climate‐related policies need to be revised to combat environmental issues. Therefore, adopting renewable energy technologies in conjunction with energy efficiency measures are needed to make safe pathways to reduce over 90% of energy related CO2. In this context, this study intends to assess the influence of foreign direct investment (FDI), economic growth, and banking and development on renewable energy consumption in South Africa from 1970 to 2020. The study uses a novel ‘bootstrap Autoregressive Distributed Lag (ARDL)’ testing to empirically analyse the short and long links among the tested variables. The ARDL estimations demonstrate a FDI and economic growth have positive effect on renewable energy consumption. Furthermore, the outcomes reveal that banking sector development affects positively renewable energy use in long run. Therefore, it is suggested that government and playmakers of South Africa must make more efforts to link the economic and baking development with renewable energy by investing capital and funds in renewable energy infrastructure. It will not only boost the economy of the country but also provide an opportunity to clean and green the environment with decreasing rate of greenhouse gases emission like carbon dioxide.