Electricity Consumption and Financial Development: Evidence from Selected EMEs—A Panel Autoregressive Distributed Lag–Pooled Mean Group Approach

This study explores the relationship between electricity consumption and financial development in 20 emerging market economies (EMEs) from 2000 to 2020. Employing the panel ARDL–PMG estimator and a two-step system GMM to address endogeneity, we identify a significant positive long-run cointegrating relationship, where electricity consumption fosters financial development. The estimated error correction term suggests a stable equilibrium, with deviations corrected at a 29% annual rate, in the short-run adjustment. These results underscore the significance of targeted energy investments in driving financial market growth. Policies promoting grid action, renewable integration, and innovative financing tools, such as green bonds, can align electricity expansion with financial stability objectives. By incorporating recent global disruptions and applying advanced econometric methods, this study provides updated empirical evidence and actionable policy insights on the electricity–finance nexus in EMEs.