Does financial development and trade openness enhance industrial energy consumption? A sustainable developmental perspective

Abstract

Purpose

The purpose of this paper is investigate the dynamic linkages among industrial energy use, industrial value added, financial development (FD) and trade openness, in case of India. The study covers the annual frequency data on both aggregate and disaggregate variables for the period 1971–2016.

Design/methodology/approach

The autoregressive distributed lag bounds testing approach is applied to examine the long-run relation among variables under consideration. Also, Johansen and Juselius (1990) and vector error-correction mechanism results confirm the result of cointegration. Furthermore, non-linear relationship in the model is also tested.

Findings

It has been found that there exists long-run relationship among variables. Long-run estimates show that increasing FD leads to more energy uses. Hence, FD should be directed in such a way that it incentivises firms to invest in energy-efficient technology. Furthermore, it is also found that study supports the evidence of conservative hypothesis, which supports that the energy conservation policy should be adopted in the industrial sector. Energy efficiency programme needs to be designed very carefully to achieve a higher level of energy efficiency. This leads to a sustainable growth and low carbon emission.

Originality/value

This paper examines the recent trend in Indian industrial energy consumption and does a comprehensive analysis using a robust econometric method. We have developed a lucid model to examine the deriving factors of industrial energy consumption.

Citation

Haider, S. and Adil, M.H. (2019), "Does financial development and trade openness enhance industrial energy consumption? A sustainable developmental perspective", Management of Environmental Quality, Vol. 30 No. 6, pp. 1297-1313. https://doi.org/10.1108/MEQ-03-2019-0060