The nexus between energy consumption and financial development: estimating the role of globalization in Next-11 countries

Abstract

In the modern era of globalization, the economic activities expand with the passage of time. This expansion may increase demand for energy both in developing and developed countries. Therefore, this study assesses the impact of financial development on energy consumption incorporating the role of globalization in Next-11 countries. A group of panel estimation techniques is used to analyze the panel data and time series data for the time 1990–2014. The empirical results of the study suggest that financial development stimulates energy consumption. Also, globalization increases demand for energy consumption, although the single country analysis suggests that the effect of globalization on energy demand is heterogeneous among N-11 countries. Furthermore, feedback hypothesis is confirmed between financial development and energy consumption. Also, bidirectional causality is found between economic growth and energy consumption. The findings urge for the attention of policymaker in emerging countries to develop a strategy to reduce the consequences of energy consumption by controlling resource transfer through globalization to the host country and by adopting energy conversation policies.