Stock market development and low-carbon economy: The role of innovation and renewable energy

We examine the effect of stock market development (SMD) on the low-carbon economy (LCE). We consider two channels, renewable energy and technological innovation by which this affect occurs. We use the cross-sectional autoregressive distributed lags (CS-ARDL) approach to analyse panel time-series data over the period 1980–2016 for European Union member countries. We demonstrate that SMD impedes LCE in the long run. In contrast, technological innovation (TI) is found to be a driving factor in achieving LCE in the long run. Our results also support the argument that renewable energy consumption and production enhance LCE. Stock market development fosters LCE through the channels of renewable energy and technological innovation. Overall results are robust to the conditions of short- and long-run homogeneity and the cross-sectional dependence in the sample. Our results pose important policy implications.