The impact of income inequality on renewable energy: The case of developing countries

In recent years, current literature has been conducting research on the determinants of renewable energy. The importance of clean energy sources emerges with the negative effects of environmental degradation. Therefore, this thesis focuses on renewable energy, which is an important parameter to suppress the negative effects of environmental degradation. The aim of this thesis is to investigate the impact of income inequality on renewable energy consumption for 33 developing countries. The relationship between income inequality and renewable energy is tested using second generation panel data analysis methods for the period 1995-2020. The seven different estimation models analyzed include economic growth, environmental pollution, trade openness, natural resources, industrialization and financial development explanatory variables in addition to income inequaility as determinants of renewable energy. The analysis findings of the study prove the existence of a cointegration relationship between the variables in the empirical models using the Westerlund bootstrap technique. The long-run coefficient estimation results obtained from the AMG estimator show that income inequality has a positive effect on renewable energy consumption. In addition, the findings reveal that industrial value added triggers renewable energy in the long run. However, the long-run findings prove that economic growth, environmental pollution and financial development negatively affect renewable energy consumption. Moreover, it is revealed that the long-run coefficients showing the effects of trade openness and natural resources on renewable energy consumption are statistically insignificant. The causality findings obtained from the Dumitrescu and Hurlin bootstrap method prove the existence of bidirectional causality between income inequality and renewable energy consumption. The estimates additionally provide support for a bidirectional causal link between economic growth, environmental degradation, industrialization and renewable energy. Moreover, it is determined that there is a unidirectional causal link from natural resources and trade openness to renewable energy consumption. On the other hand, a causal relationship is detected from renewable energy consumption to financial development. These results obtained from the empirical part of the thesis statistically confirm the income inequality – renewable energy consumption relationship in developing countries. Finally, this empirical evidence enables the presentation of various policy recommendations for developing countries.