Does Financial Deepening Foster Clean Energy Sustainability over Conventional Ones? Examining the Nexus between Financial Deepening, Urbanization, Institutional Quality, and Energy Consumption in China

Abstract

Energy availability and the selection of suitable energy sources have substantial implications on both economic and environmental sustainability, and it is because the environmental protection cost is directly linked to overall energy inclusion in the economy. Thus, the importance of clean energy has been noticed in the literature regardless of the economic structure. The purpose of the study is to discover the effects of financial deepening (FD), urbanization (UR), and institutional quality (IQ) on China’s energy consumption. Annual time series date for 1985 to 2019 utilized for documenting the coefficients of explanatory variables by implementing both linear and nonlinear Autoregressive Distributed Lagged (ARDL) and the Fourier-TY causality test. In terms of the test statistics for combined and Maki cointegration, the study revealed that a long-run association prevails in the empirical nexus. Moreover, the symmetric and asymmetric framework established long-run associations. Referring to the coefficients of financial deepening, UR, and governmental effectiveness, the study found a statistically significant and favorable impression of REC. While financial deepening and governmental effectiveness unveiled negatively influenced NREC and fossil energy consumption. The asymmetric linkage between explained and explanatory variables was confirmed through the execution of a standard weld test with a null symmetry. The asymmetry coefficients of FD, UR, and IQ were positive and statistically significant at the 1% level in both the long and short runs. The directional causality revealed feedback hypothesis holds in understanding the causal relationship between explanatory factors and RE usage. The policy recommendations for the future were generated from the research findings.