Is the impact of financial development on energy consumption in Jamaica asymmetric?

Abstract

Purpose The purpose of this study is to determine whether causal asymmetries exist between energy consumption and three dimensions of financial development in Jamaica. Design/methodology/approach The authors use the non-linear autoregressive distributed lag method to identify the long- and short-run associations between energy consumption and different measures of financial development in Jamaica for the period 1980 to 2018. Findings There are two central findings. First, cointegrating relationships run from the dimensions of financial development to energy consumption. Second, the authors find asymmetries in these relationships. In the long run, asymmetries are such that rising levels of financial development have a neutral impact on energy consumption. By contrast, falling levels of financial development in the long run are associated with increases in energy consumption. In the short run, the authors find evidence of asymmetries only in changes in the overall level of financial development on energy consumption. Practical implications One practical implication is that for Jamaica to avoid some of the potential negative environmental consequences resulting from the positive impact on energy consumption arising from falling levels of financial development, a strong financial development policy will be important. Social implications There will be positive social impacts from financial development in the area of climate finance. Originality/value To the authors’ knowledge, this is the first study on Jamaica that examines the financial development–energy nexus. Further, the authors use relatively new and comprehensive measures of financial development.

Spatiotemporal analysis of energy consumption and financial development in African OPEC countries

“…This is with an assumption that negative and positive variations in financial development have the proclivity of eliciting not just symmetric but also asymmetric reactions from energy use. McFarlane et al (2022) in their study of the Jamaican economy not only found cointegration running from the three dimensions of financial development to energy consumption, but also found that falling levels of financial development are causally interconnected with increase in energy consumption in the long run, while the overall level of financial development exhibited differential impact on energy consumption.…”

“…McFarlane et al (2022), Thebuho et al (2022) and Qamruzzaman and Jianguo (2020), in the novelty of their study and in apparent departure from others, investigated the energy and financial development nexus from an asymmetric perspective. This is with an assumption that negative and positive variations in financial development have the proclivity of eliciting not just symmetric but also asymmetric reactions from energy use.…”