Impact of FDI and Stock Market Expansion on Clean Energy: A Case of Selected Countries

Abstract

The ongoing challenge of global warming fundamentally alters Earth's climate patterns, primarily due to the escalating levels of carbon emissions. This environmental perturbation necessitates a critical shift from conventional fossil fuel energy sources to cleaner alternatives. In this study, we undertake an extensive examination of the impact of stock market expansion and FDI on clean energy adoption within different income strata, encompassing high-income, middle-class income, and lower-class income countries. Our comprehensive analysis employs advanced econometric methodologies, specifically the approaches of Dynamic Ordinary Least Squares (DOLS) and Fully Modified Ordinary Least Squares (FMOLS). The results reveal intricate relationships among the variables of interest. Notably, CO2 emissions, FDI inflow, and trade openness exhibit statistically significant negative associations with clean energy adoption, while energy consumption and stock market growth display positive correlations. This study offers pertinent policy implications. Most notably, it underscores the pivotal role of stock market growth in facilitating clean energy adoption. Governments are encouraged to leverage stock markets as a viable avenue for securing more money for clean energy ventures by listing pure energy stocks on stock exchanges. Furthermore, governments may explore extending tax incentives to encourage investment in clean energy firms.