Do renewable energy consumption and financial development matter for environmental sustainability? New global evidence

Abstract The present study aims to explore the long‐run and causal effect of financial development and renewable energy consumption on environmental sustainability while controlling technological innovation and economic growth within the global framework. In line with the aim of the study, the fully modified OLS (FMOLS), dynamic OLS (DOLS), canonical cointegrating regression (CCR), Bayer and Hanck cointegration, and frequency‐domain causality tests are employed. Empirical evidence confirms the existence of a long‐run linkage among the variables. The present study also finds that in the long run, global financial development and global renewable energy consumption have a long‐run significant positive effect on environmental sustainability, while economic growth increases carbon emission flaring around the world. Within the global framework, the study, therefore, recommends that in order to increase environmental quality, global policy‐makers should further consider the roles of renewable energy and financial development by implementing reform energy policies in both developed and developing countries.