The impact of globalization and financial development on energy consumption: Implications for Iran's regional cooperation with neighboring countries

Dalvandi, Maasoumeh; Nademi, Younes; Fotros, Mohammad Hassan

doi:10.22059/jcountst.2025.389132.1232

The impact of globalization and financial development on energy consumption: Implications for Iran's regional cooperation with neighboring countries

Document Type : Original

Authors

¹ Department of Economics, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan Iran.

² Department of Economics, Faculty of Humanities, Ayatollah Borujerdi University, Borujerd, Iran.

³ Department of Economics, Faculty of Economics and Social Sciences, Bu Ali Sina University, Hamedan, Iran.

10.22059/jcountst.2025.389132.1232

Abstract

Globalization has led to the expansion of economic activities around the world and has important effects on the energy consumption of countries. Meanwhile, the impact of globalization on energy consumption can be positive or negative. Financial development is also known as a key factor in economic growth and can significantly affect energy consumption. This study examines the relationship between financial development, globalization and energy consumption and provides implications for Iran's regional cooperation with neighboring countries. The purpose of this research is to analyze the effect of globalization and financial development on energy consumption, focusing on emerging economies and countries in the region from 1980 to 2021 using three panel data methods including Generalized Least Square, FMOLS, and DOLS. Also, investigating how to use the capacities of globalization to promote Iran's energy cooperation with neighboring countries is another goal of this study. The results show that financial development increases the access to credits and leads to the growth of economic activities and thus increases energy consumption. Globalization also causes an increase in energy consumption in the initial stages, but after crossing a certain threshold, energy consumption decreases. These findings indicate the existence of a hump-shaped relationship between globalization and energy consumption. In addition, foreign investment, regional trade and urbanization play a significant role in increasing energy demand. As a result, with the development of regional cooperation and the transfer of energy-efficient technologies through trade and investment connections, Iran can move towards sustainable development and green industries while reducing energy consumption. It is suggested that the policy makers, by taking advantage of the capacity of globalization and financial development, create a suitable platform for investment in the field of energy and expand regional cooperation in order to reduce dependence on fossil energy.

Keywords

Main Subjects

Economics

حوزة موضوعی: ایران

Scope: Iran

References

Ahmed K. (2017). “Revisiting the role of financial development for energy-growth-trade nexus in BRICS economies”. Energy. 128: 487-495. https://doi.org/10.1016/j.energy.2017.04.055.

Ahmed K, Bhattacharya M, Qazi AQ, Long W. (2016). “Energy consumption in China and underlying factors in a changing landscape: Empirical evidence since the reform period”. Renew. Sustain. Energy Rev. 58(C), 224-234. https://doi.org/10.1016/j.rser.2015.12.214.

Ahmed Z, Wang Z, Mahmood F, Hafeez M, Ali N, (2019). “Does globalization increase the ecological footprint? Empirical evidence from Malaysia”. Environ. Sci. Pollut. Res. 26: 18565-18582. https://doi.org/10.1007/s11356-019-05224-9.

Alizadeh S. (2014). Investigating the impact of globalization on energy intensity in Iran. Master's thesis. Tabriz Azad University. [in Persian]

Cetin M, Ecevit E, Yucel AG. (2018). “The impact of economic growth, energy consumption, trade openness, and financial development on carbon emissions: empirical evidence from Turkey”. Environ. Sci. Pollut. Res. 25: 36589-36603. https://doi.org/10.1007/s11356-018-3526-5.

Changizi-e Kecheklu K, Gangiov G, Abbasov V. (2024). “Investigation of commercial potential and prospects of development in Iran-Azerbaijan business relations using gravity model”. Journal of Countries Studies. 2(3): 353-377. https://doi.org/10.22059/jcountst.2024.370214.1094. [in Persian]

The Country's Management and Planning Organization. “Economic reports of the vice president of economic affairs and coordination (macroeconomy office) in the years (1368-1383)”. [in Persian]

Danish, Ulucak R. (2021). “A revisit to the relationship between financial development and energy consumption: Is globalization paramount?”. Energy. 227: 1-8. https://doi.org/10.1016/j.energy.2021.120337.

Danish K, Saud S, Baloch MA, Lodhi RN. (2018). “The nexus between energy consumption and financial development: Estimating the role of globalization in Next-11 countries”. Environ. Sci. Pollut. Res. 25: 18651-18661. https://doi.org/10.1007/s11356-018-2069-0.

Demirtas C, Tiwari AK, Yildirim ES, Shahbaz M. (2025). “Does Financial Development Support Renewable Energy Consumption: Evidence from the UK”. Renewable Energy. 122480. https://doi.org/10.1016/j.renene.2025.122480.

Etokakpan MU, Adedoyin FF, Vedat Y, Bekun FV. (2020). “Does globalization in Turkey induce increased energy consumption: Insights into its environmental pros and cons”. Environ. Sci. Pollut. Res. 27: 26125-26140. https://doi.org/10.1007/s11356-020-08714-3.

Fernandez, M. (2019). BioEnergy Consult powering clean energy Future. Biomass Energy in China April 11, 2019 Miriam Fernandez.

Gaies B, Kaabia O, Ayadi R, Guesmi K, Abid I. (2019). “Financial development and energy consumption: Is the MENA region different?” Energy Policy. 1-11. https://doi.org/10.1016/j.enpol.2019.111000.

Ghazouani T. (2022). “Dynamic impact of globalization on renewable energy consumption: non-parametric modelling evidence”. Technological Forecasting & Social Change. 185: 1-13. https://doi.org/10.1016/j.techfore.2022.122115.

Harati J, Zamanian G, Tagizadeh H. (2018). “The relationship between financial development and energy consumption: A comparison of developing and advanced countries”. Iranian Journal of Economic Research. 22(73): 197-236. https://doi.org/ 10.22054/ijer.2018.8303. [in Persian]

Köksal C, Işik M, Katircioglu S. (2020). “The role of shadow economies in ecological footprint quality: empirical evidence from Turkey”. Environ. Sci. Pollut. Res. 27: 13457-13466. https://doi.org/10.1007/s11356-020-07956-5.

Koengkan M. (2018). “The positive impact of trade openness on consumption of energy: Fresh evidence from Andean community countries”. Energy. 158: 936-943. https://doi.org/10.1016/j.energy.2018.06.091.

Komal R, Abbas F. (2015). “Linking financial development, economic growth and energy consumption in Pakistan”. Renew Sustain Energy Rev. 44. 211-20. https://doi.org/10.1007/s11356-020-07956-5.

Latif Z, Mengke Y, Danish, … Jianqui Z. (2017). “The dynamics of ICT, foreign direct investment, globalization and economic growth: panel estimation robust to heterogeneity and cross- sectional dependence”. Telematics Inform. 35(2): 318-328. https://doi.org/10.1016/j.tele.2017.12.006.

Mahalik MK, Babu MS, Loganathan N, Shahbaz M. (2017). “Does financial development intensify energy consumption in Saudi Arabia?”. Renew Sustain Energy Rev. 75: 1022-34. https://doi.org/10.1016/j. rser.2016.11.081

Mansoorabadi S, Khodaparast Shirazi J, Zare H, Ebrahimi M. (2022). “The effect of globalization on energy consumption in developing country: Accurate quantitative regression”. Quarterly Journal of Energy Economics Studies. 18(75): 145-172. http://dx.doi.org/7.18.75.145. [in Persian]

Mukhtarov S, Dincer H. (2022). “The impact of financial development on renewable energy consumption: Evidence from Turkey”. Renewable Energy. 187: 169-176. https://doi.org/10.1016/j.renene.2022.01.061.

Nademi Y, Hasanvand D. (2019). “The Threshold Financial Development and Energy Consumption in Iran”. Qjfep. 7(25): 59-78. http://qjfep.ir/article-1-684-fa.html. [in Persian]

Nademi Y, Khochiani R. (2024). “The pursuit of happiness in a circular economy”. Journal of the Knowledge Economy. 15: 18350-18377. https://doi.org/10.1007/s13132-024-01739-w.

Prempeh KB, Kyeremeh C, Yeboah SA, Danso FK. (2024). “Asymmetric impact of financial development on renewable energy consumption in Ghana”. SN Business & Economics. 4(9): 100.‏ doi: https://colab.ws/articles/10.1007%2Fs43546-024-00689-4#.

Rodrik D, (1999). Making Openness Work, the New Global Economy and the Developing Countries. Washington D.C., The Overseas Development Concil.

Sadorsky P. (2011). “Financial development and energy consumption in Central and Eastern European frontier economies”. Energy Pol. 39: 999-1006. https://doi.org/10.1016/j.enpol.2010.11.034.

Sadraoui T, Hamlaoui H, Youness Z, Sadok IB. (2019). “A dynamic panel data analysis for relationship between energy consumption, financial development and economic growth”. International Journal of Econometrics and Financial Management. 7(1): 20-26. https://doi.org/10.12691/ijefm-7-1-3.

Shahbaz M, Mahalik MK, Shahzad SJH, Hammoudeh S. (2019). “Does the environmental Kuznets curve exist between globalization and energy consumption? Global evidence from the cross-correlation method”. Int. J. Finance Econ. 24: 540-557. https://doi.org/10.1002/ijfe.1678.

Shahbaz M, Lahiani A, Abosedra S, Hammoudeh S. (2018a). “The Role of Globalization in Energy Consumption: A Quantile Cointegrating Regression Approach”. Munich Personal RePEc Archive. 20. 1-36. https://mpra.ub.uni-muenchen.de/84682/MPRA Paper.

Shahbaz M, Nasir MA, Roubaud D. (2018b). “Environmental degradation in France: the effects of FDI, financial development, and energy innovations”. Energy Econ. 74: 843-857. https://doi.org/10.1016/j.eneco.2018.07.020.

Shahbaz M, Hoang THV, Mahalik MK, Roubaud D. (2017). “Energy consumption, financial development and economic growth in India: new evidence from a nonlinear and asymmetric analysis”. Energy Economics. 63: 199-212. https://doi.org/10.1016/j.eneco.2017.01.023.

Shahbaz M, Mallick H, Mahalik MK, Sadorsky P. (2016). “The role of globalization on the recent evolution of energy demand in India: Implications for sustainable development”. Energy Econ. 55. 52-68. https://doi.org/10.1016/j.eneco.2016.01.013.

Shahbaz M, Khan S, Tahir MI. (2013). “The dynamic links between energy consumption, economic growth, financial development and trade in China: fresh evidence from multivariate framework analysis”. Energy Econ. 40: 8-21. https://doi.org/10.1016/j.eneco.2013.06.006.

Vafaei E, Pendar M, Masumzadeh S. (2021). “Investigating the financial development on energy consumption”. Program and Development Research. 2(3): 99-115. https://doi.org/ 10.22034/pbr.2021.145872. [in Persian].