FINANCIAL DEVELOPMENT AND RENEWABLE ENERGY CONSUMPTION: THE MODERATING ROLE OF HUMAN CAPITAL

This study aims to resolve the inconsistency in empirical literature on the nexus between financial development (FD) and renewable energy consumption (REC) by testing the hypothesis that human capital (HC) plays a crucial moderating role. Using an unbalanced panel dataset of 16 developing and emerging Asian economies from 2000 to 2022, we employ the Fixed Effects Model (FEM) with Driscoll-Kraay standard errors and the System Generalized Method of Moments (System GMM) to control for endogeneity and cross-sectional dependence. The empirical results show that, when considered independently, financial development has no significant impact on renewable energy consumption. However, we find strong evidence for the positive moderating role of human capital. Specifically, the impact of financial development on renewable energy is negative in countries with low levels of human capital but becomes positive and statistically significant when human capital surpasses a critical threshold (corresponding to a secondary school enrollment rate of approximately 68.2%). The main conclusion of the study is that human capital is not only an independent driver but also a prerequisite, an “absorptive capacity” that helps transform financial resources into effective renewable energy projects; thereby demonstrating that the effectiveness of financial development in driving the green transition is conditionally dependent on a nation's educational foundation. This finding carries a significant policy implication: strategies focusing solely on financial reform are insufficient and may be counterproductive. To successfully promote the energy transition, policymakers must pursue a dual strategy, synchronously combining the development of the financial system with strategic investment in education and human resource training to maximize the synergy between finance and knowledge.