Money to fill the gap? Local financial development and energy intensity in Europe and Central Asia

Bagayev, Igor and Najman, Boris (2014): Money to fill the gap? Local financial development and energy intensity in Europe and Central Asia.

Abstract

In this paper we provide original findings on the impact of local financial development (LFD) on manufacturing firms' energy intensity in European and Central Asian (ECA) post communist countries. We implement the two-step method of Guiso et al. (2004) in order to build a lagged measure of financial development at the local level. The paper is the first to use this methodology to assess local financial development in the ECA region and to test its effect on firm-level energy demand. According to related literature, our findings also show that firm size matters. But we also provide a new insight about the non-linear effect of financial development depending on the scope of the financial market. We show that while energy consumption of small businesses is more affected by local financial markets, large firms are more sensitive to countrywide financial in-depth. Overall, this paper provides econometric evidence for a financial access explanation of the "energy efficiency gap". Improving financing opportunities should increase firms’ energy efficiency. Moreover, focus on local conditions and small firms should be an important feature of active energy-saving financial policies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Energy Intensity, Local Financial Development, Firm Size, ECA Region
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P28 - Natural Resources ; Energy ; Environment; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy

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