The relationship between financial development and renewable energy production: Analysis for Turkey

Energy is an extremely crucial and necessary factor in the economic and social development of countries. The fulfillment of energy needs heavily relies on the use of fossil fuels. To address the serious environmental and economic issues associated with the use of fossil resources, a global shift towards renewable energy sources, which represent the best alternative, has commenced. Countries are striving to increase the share of renewable energy in total energy consumption through various initiatives and policies. One of the most significant factors in increasing the share of renewable energy in total energy production is the reduction of investment and production costs of renewable energy. In this context, an advanced financial system lowers the cost of borrowing through diversification of financial instruments. It also directs resources toward efficient technological areas, thereby fostering the development of renewable energy technologies and, consequently, reducing production costs. This study investigates the relationship between financial development and renewable energy production in Turkey using annual data from the period 1995-2021 through the Toda-Yamamoto causality test. According to the findings of the analysis, it is determined that there is a causal relationship from financial development to renewable energy production. Therefore, an increase in the level of financial development has a positive impact on renewable energy production. Keywords: Financial development, Renewable energy production, Toda-Yamamoto causality test