Renewable energy generation and financial market dynamics in Europe: a disaggregated approach

This paper adds to the existing body of research on the connection between renewable energy generation and financial market development. It does so by examining this relationship while differentiating between three types of financial market development: access, efficiency, and depth, and by categorizing renewable energy generation into three types: wind, solar, and hydroelectric energy. Additionally, the paper evaluates the mediating role of stock market capitalisation in the relationship between renewable energy and financial market development. Using panel two-stage least squares (2SLS) based on Lewbel's instrumental variable approach, the study concludes that wind energy generation is the most responsive to the various components of financial market development among European countries. The bootstrapping causal mediation analysis shows the significant mediating role of stock market capitalisation, particularly in the impact of financial market development on wind energy generation. These findings offer valuable insights for policymakers seeking to finance renewable energy projects in order to achieve Sustainable Development Goal 13.