Renewable Energy Consumption and Local Environmental Effects for Economic Growth: The Role of Financial Development and Foreign Direct Investment


 The use of renewable energy improves environmental quality by reducing carbon emission and influence economics growth where carbon emission also effect economic growth of a country. The economic theory of tourism also indicates that tourism development enhance economic growth though spillovers as well contribute to climate change. The inflow of FDI and financial development enhance economic growth however its also effect environmental quality. Based on the ongoing debate, the present research trying attempts to explore the effect of CO2 emission and renewable energy consumption, FDI and financial development on economic growth in different income grouped countries to know whether these impacts are the same for the low income, middle income and high income countries on economic growth? Using panel data for high income, low income & middle income countries for the period of 1980–2018, the current study found that all variables effect economic growth significantly where FDI and carbon emission are positive while renewable energy consumption and financial development are negative for economic growth in the whole sample while its differ in the income groups. These studies have shown that these variables are not the same as the economic growth of economic growth and different income groups are not the same, but it changes. In addition, the foundation of this study has a great deal of recommendations for income Group economic decision make-up.


Introduction
Economic growth is the basic concern most of every country however there are several factors associated which in uence economic growth of a country. Several factors recently debated which in uence economic growth such the effect of renewable energy consumption, FDI, carbon CO2 emission, tourism and nancial development (S. Wang, Li, & Fang, 2018); (Acaravci & Ozturk, 2012); (Kasman & Duman, 2015); (Kahouli, 2017); (Acheampong, 2018). Inconclusive results and conclusion have been achieved for different countries and samples on this association. Renewable energy consumption, carbon emission and nancial development are relatively new factors and its impact on economic growth has not been investigated deeply and e ciently. Economic growth, nancial institutions, the in ow of foreign direct investment and environmental quality of different income level countries are not the same which needs to be investigated effectively. Several studies has been conducted on such association for different sample and regions by using few variables while less attention has been given to the impact of renewable energy consumption, carbon emission, nancial development and foreign direct investment in income level countries. The main motivation of this comprehensive study is the ongoing debate regarding the importance of the study variables on economic growth. (Jebli, Youssef, & Apergis, 2019) illustrate that Renewable energy consumption and carbon emission are associated with economic growth. Stretesky & Lynch, (2009) argues that the in ow of foreign direct investment enhance environmental quality by reducing air pollution because its use e cient technology for production and the in ow of FDI increase economic growth. However, (Gökmenoğlu & Taspinar, 2016), (Acharyya, 2009) argues that FDI increase economic growth while its degrade environmental quality in countries with poor environmental regulation where energy from fossil fuels is using for production in those countries. Economic growth is associated positively with RE (renewable energy) where high renewable energy consumption will lead to high per capita GDP (Saidi & Hammami, 2015a); (Saidi & Hammami, 2015b); (Islam, Shahbaz, Ahmed, & Alam, 2013). Likewise, (Abul, Satrovic, & Muslija, 2019) statues that tourism positively in uence FDI while some researchers believes that tourism activities increase pollution. There is ongoing debate on FDI, environmental pollution and economic growth. This ongoing debate on the topic motivate this study where the importance of FDI, tourism, CO2, renewable energy and nancial development on economic growth have been explored. Numerous researchers have conducted different studies on the relationship of these variables however these studies are not fully established. Economic growth and nancial development have been found to be positively associated where nancial development has been considered as a very important driver of economic growth. Similarly, it's been discussed that foreign direct investment plays a very important part in reducing carbon emission by using renewable energy and it's also enhance economic growth while in some countries it's been found that FDI degrade environmental quality by investing in dirty industries. Tourism is very important for economic growth as well it's important for carbon emission reduction. It's also been found that the use of renewable energy consumption instead of energy from fossil fuels is bene cial for quality environment and its enhance economic growth and CO2 emission also in uence the use of renewable energy. Based on the above discussion, economic growth is the main purpose of these income level countries where these factors are not the same in all income level countries such as the regulation of foreign direct investment, the level of nancial development and the use of renewable energy consumption are different in these income level countries. For the rst time, this study is trying to investigate the factors which have in uenced economic growth of different income level countries and what factors are important for different income countries to enhance economic growth and what policies should be adopted to increase their income level.
Moreover, the current study employed dynamic models for e cient estimation in the sample countries.
The current study give recommendation to income groups that the effect of these variables on economic growth and environment are not the same but its varies in different economies. The current study gives suggestions to the different income group's economies on their weakness and factors to be improved.
Our study is bene cial to provide complete policy implication regarding the impact of all these variables on economic growth for different income groups. Our results on the global panel are different than the income level countries analysis. Foreign direct investment is negatively associated with economic growth in lower middle and upper middle income countries while positively associated with economic growth in high income countries in our results where the reason should be identi ed. Carbon emission enhance economic growth both in upper middle income and high income countries while negatively associated with economic growth in lower middle income countries. Renewable energy enhances growth level mostly in all results where nancial development is important for lower middle income countries to boost economic growth. Our research is organized in a given order; Section ii explains the empirical literature review on the correlation between different variables in the current research; Section iii is composed of methodology; Section iv introduces the results and discussion of the research; and Section v summarizes the research.

Literature Review
There has been conducted large number of studies on similar topics but with little accord. The relation of economic growth with such factors such as nancial development, carbon emission CO2 and energy consumption have been studied by several scholars (Sha ei & Salim, 2014); (Jebli & Youssef, 2015); (Dogan & Turkekul, 2016). (Chen, Thapa, & Yan, 2018) have studied the linkage among carbon dioxide emissions, tourism and economic growth in China. Their ndings shows that tourism increase energy consumption and carbon emission. Similarly, (Hao,  Khan & Kong, 2019) examined environmental pollution and economic growth in developing and developed countries and founds unidirectional short run relationship between the variables. Similarly, (Ohlan, 2017) shows that nance, economic growth and tourism are associated and they suggest better policy for the campaign of tourism. Renewable energy consumption is also been considered as it play important role in carbon emission. Likewise, foreign direct investment performs a pivotal role in reducing carbon emission by using renewable energy. (To, Ha, Nguyen, & Vo, 2019) statutes that FDI caused pollution degradation in Asian and foreign direct investment affect environment strongly.

Data
This research explore the impact of CO2 emission, in ow of foreign direct investment, renewable energy usage, nancial development and economic growth in the world, world high income countries, upper middle income countries and lower middle income countries for the time 1980 to 2018. The study used panel data where all these variables data have been gathered from the World Bank, world development indicator. The variables used in this study are FDI (foreign direct investment) which has been taken as a percent of Gross domestic product GDP, international tourism, carbon emission which is calculated as metric tons per capita, renewable energy consumption (calculated as a percent of total ending energy), nancial development by bank proxy by domestic credit to private sector by bank calculated as a percent of GDP where the dependent variable is per capita GDP. Moreover, controls variables have been used in the study are urban population, total government expenditure, trade openness and merchandise trade (% of GDP).

Econometric Models and Methods
The current study use different models which includes xed effect, OLS, GMM and System GMM models to examine the effect of FDI, international tourism receipts, renewable energy consumption, CO 2 emission and nancial development FD by bank on economic development in income group's economics. The system GMM model most effective estimator therefore used, because OLS & xed-effects models are not e cient and may cause several econometrics problems. We used these static models to compare this research with previous research that found different results compare the results. In addition, we also use a differential GMM model, where the differential GMM uses the rst-order difference of the regressor and converts the regression of the dependent variable, which can handle country speci c effects and make the regressor time constant. In this model, the rst differences of lagged dependent variable are using to eliminate the problems of autocorrelation. (Arellano & Bover, 1995) It shows that this model may also give ine cient conclusions due to the deliberate nature of the independent variables. Therefore, the system GMM model has considered by different scholars and pointed out that the two step GMM estimator is the most effective estimator (Law & Azman-Saini, 2012). The current research nally focus on system GMM model to examine the impact of the study variables on economic growth in income groups.
The empirical model can be explained as follows; Where EG is the dependent variables used to represent economic growth, foreign direct investment FDI is the in ow of FDI calculated as net in ows as percent of GDP Gross domestic product , ITR is international tourism, RE represents the consumption of renewable energy, CO2 represents carbon dioxide, FD represents the nancial development of the bank, and EGit-1 is the rst lag of the left-hand dependent variable, used as an explanation in the equation to quantify the effect of the previous year The variable in the last year, Xit represents the direction of the control variable, and the hypothesis will affect our left variable. The control variables of the study are urban population, government expenditure, trade openness and commodity trade. The subscripts in the equation specify (i = 1. . . N) and (t = 1980 . . .

Findings and Discussions
The following section illustrates that results on the effect of CO2 emission, FD nancial development, tourism, RE and foreign direct investment FDI on economic growth for the whole sample. In the table below, column 1 illustrates the list of independent and control variables of the study, column 2 present of OLS model the results, column 3, 4 and column 5 present the results of xed effect, system GMM and GMM models respectively. The result of GMM indicates that the lagged dependent variables are highly statistically signi cant which shows the suitability of the dynamic models both system and difference GMM. Similarly, the Sargan test and AR -1 & AR-2 p values also indicates the suitability of the models. Likewise, our study also used tourism and its role in enhancing economic growth where the estimated co e cient of tourism is high signi cant while its association with economic growth is negative in the global panel which shows that tourism decrease economic growth. Specially the estimated Similarly, the renewable energy estimated coe cient has found signi cantly mostly in all models while it is impact on economic growth is negative, which shows that a rise in the use of RE lowers economic growth in the globe while it's been also argued that renewable energy consumption is bene cial for environmental quality. For instance, the system GMM results shows that a percent increase in the use of renewable energy will reduce economic growth by 0.003% in the globe. Our results further suggest that renewable energy related nancing should be promoted to avoid its negative in uence on economic growth as economic growth is very important of any country as well the renewable energy consumption is also bene cial to promote environmental quality. They study of (Bilan et al., 2019) also reinforced the ndings of the current study where they use DOLS model illustrates that increase in renewable energy RE consumption decrease economic growth.
Likewise, the estimated coe cient of carbon dioxide emission in xed effect and system GMM models are highly statistically signi cant and positive which shows that a percent increase in carbon emission will increase economic growth by 0. 40  Likewise, the estimated co e cient of nancial development (FD) by bank which is proxied by credit to private sector is also highly signi cant at a 1% signi cance level while in the panel the impact on economic growth is negative. For instance, the results of system GMM indicates that if there is one percent rise in credit to private sector will decrease growth by 0.88 percent in the globe. The FD impact is negative on economic growth maybe the reason of low income countries in the panel with   Source: Own calculation Note: system generalized method of moments SGMM. And the standard error is shown in parentheses, and the signi cance level is shown by *, **, *** at 1, 5 and 10% respectively The two step system result is given in the table above for income groups on the impact of FDI, international tourism receipts, nancial development by bank, renewable energy and carbon emission on economic growth where column 1 presents the study variables and column 2, 3 and 4 shows the two step system GMM results of High income countries, upper middle income & lower middle income economies respectively.
The results suggest that the lagged dependent variable, which is economic growth, is signi cant highly which illustrates that the employed estimator is suitable. The two Similarly, the Carbon emission estimated coe cient is extremely signi cant and the relationship with economic growth is positive for top income & upper middle income countries which indicates that increase in greenhouse gas emission increase economic growth in these countries. Same results regarding carbon emission on economic process have found by (Fan & Hossain, 2018); (Bilan et al., 2019) and (Issaoui, Toumi, & Touili, 2015). However the carbon emission is negative relationship with economic growth for lower middle income economies which illustrates that increase in carbon emission CO2 in these countries decrease economic growth.
Moreover, renewable energy RE consumption is also found to be highly statistically signi cant for all income based countries and also the relationship with economic process is positive for top and lower middle income groups which indicates that a percent rise in renewable energy consumption rise economic growth by 0.004 percent. The results indicates that prime income and lower middle income countries have achieved the increased level of renewable energy in total energy budget which shows that these objectives are associated to their renewable energy shares within the nal energy consumption. As it's far known that the renewable energy zone need lots of nancing and the acquired outcomes shows Similarly, the model also uses bank private sector credit as an agent for nancial development, where the estimated coe cient is found to be signi cantly positive for economic growth in low-and middle-income countries, and signi cantly positive for high-and middle-income and high-income countries. More precisely, the value of two step S-GMM indicates for lower middle income countries that if there is extension in private sector credit will boost the growth level by 0.072 percent in these countries. The results indicate that credit extension to private sectors is e cient so that's why the nancial development proxied by private sector credit increases economic growth. While the other income grouped countries results indicates that nancial development decrease economic growth which can be the reason of low credit to private sector extension. The current results are in line with ndings of (Jalil & Ma, 2008) and (Lenka, 2015). Urban population has been used as a control variable in the model where it's also signi cant which indicates that its rise economic growth in upper and lower middle income countries while the value are insigni cant for high income countries while have no effect on growth in high income countries. The co -e cient of trade openness is also highly statistically signi cant and positive for all income grouped countries which indicates that trade openness increase economic growth in all economies. Its further suggests that the trade openness level has been increased and facilitated in these economies. (Butkiewicz & Yanikkaya, 2003) also statues that the level of trade openness rise economic growth. Similarly, government expenditure is also signi cant and negative for all groups which illustrates that government expenditure in the sample countries negatively affect economic growth. Merchandize trade in the model is also signi cant highly while its impact on growth in negative high income while positive in upper middle & lower middle income countries which shows that increase in merchandize trade rise economic growth for upper middle -lower middle income economies while decrease economic growth in high income countries. signi cance level are presented by *, **, *** at 1, 5 and 10 percent respectively.  (2), (3) and (4) shows the xed effect model results of High income countries, upper middle income and lower middle income economies respectively.
The results of xed effect model in the above given The ndings of the global panel indicates that the level of FDI in ow augment economic growth in the panel which illustrates that most of the countries in the panel have facilitated the in ow of FDI while other variable of the study have been found signi cantly while negatively associated with economic growth which shows that a portion of the countries in the panel have not yet enhanced the level of tourism, RE consumption and FD however carbon dioxide emission CO2 have been found to be a driver of economic growth.
In case of income groups, FDI is negatively associated with economic growth in high income, lower middle income and upper middle income countries which shows that the level of FDI in ow is still not yet the desired level in these income groups to contribute to economic growth of these countries positively.
on the other hand, tourism have been found that its exert positive role in enhancing economic growth in the lower middle and upper middle income economies while negatively associated with economic growth in the high income countries.
Likewise, the results of RE consumption and FD have been found that its enhance economic growth in middle income countries while its in uence growth negatively in upper middle income countries. In case of high income countries, the role of RE consumption is positive while the impact of nancial development is negative signi cant on economic growth. The study countries are suggested to facilitate tourism as tourism contributes e ciently to economic growth of a country. The nancial sector should also be promoted and more budgets should be allocated to use the renewable energy consumption and avoid the use of fossil fuels as renewable energy consumption is bene cial for environmental quality.
Credit to private sector should be extent which can contribute to economic growth and also give bene ts to other sectors such as tourism, FDI and environment where these other factors also in turn contribute to economic growth positively. nancial development is very important for any country as FD enhance the level of FDI, promote tourism related projects, contribute to environment friendly projects and funding green energy consumption where all these factors in turn bene cial for economic growth.
The level of FDI is found low in the lower middle income countries. These countries should focus to facilitate the in ow of foreign direct investment by providing nancial services and other facilities to foreign investors and then in increase in FDI will enhance economic growth of these countries. These countries should adopt better policies to attract more foreign direct investment, nance renewable energy consumption and expand private sector credit to achieve high economic growth. Lastly, the high income countries should developed tourism and private sector credit expansion which can help increase economic growth of the countries. the current study have focused only on the study variables however future studies should use other indicators and may include institutional quality to examine this association and encourage to investigate this study on developing countries and developed countries.