Effects of financial developments and income on energy consumption

Article history: Received 18 November 2013 Received in revised form 26 August 2014 Accepted 26 August 2014 Available online 7 September 2014 Extending Sadorsky (2010), this paper focuses on nonlinear effects of financial development and income on energy consumption. Utilizing five alternative measures of financial development, it employs a panel threshold regression approach to reexamine the effect of financial development and income on energy consumption. The analysis relies on a sample of 53 countries for the period 1999–2008, showing a single-threshold effect on energy consumption when private credit, domestic credit, value of traded stocks, and stockmarket turnover are used asfinancial development indicators. It implies that the sample can be split into two regimes: high income, and non-high income. Energy consumption increases with income in emerging market and developing economies, while in advanced economies energy consumption increases with income beyond a point at which the economy achieves a threshold level of income. In addition, in the non–high income regime, energy consumption increaseswithfinancial developmentwhen bothprivate and domestic credit are used as financial development indicators. However, when the value of traded stocks and stock market turnover are used as financial development indicators, it slightly declines with financial development in advanced economies, especially in high-income countries, but increases in the higher income countries of emerging market and developing economies. © 2014 The Author. Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). JEL classification: C3 G1 Q4