Abstract
This study investigates the nexus between renewable energy investments, financial development and economic growth in South Africa using cointegration analysis for a 50-year period between 1970 and 2020. South Africa is highly endowed with renewable energy resources, yet the country still faces energy security challenges, threatening the socio-economic progress of the nation. Furthermore, the current energy composition of the country is deemed unsustainable, as it is heavily reliant on fossil fuels.
Existing studies in the nexus have indicated that the developments in the financial sector are key catalysts for investments in renewable energy technologies; however, there is still a limited body of work that covers this relationship in the local context. This study contributes to the existing body of work by taking a broader view of financial markets including equity markets as well as capturing the recent developments in the South African renewable energy sector. Using proxies representing both equity and debt capital market, the results indicate that there is a long-term linkage between financial sector development and the adoption of renewable energy resources as alternative and supplementary energy sources in South Africa, forming a case for policymakers to create an enabling environment that supports renewable energy investments to reap all the associated benefits, and to achieving sustainable economic growth.
Keywords: renewable energy, economic growth, financial sector development, cointegration, just transition, REIPPPP, vector error correction model, solar pv