Financial sector development, external debt, and Turkey's renewable energy consumption.

The primary aim of this paper is to provide fresh evidence by testing the linkage between renewable energy consumption, financial development, and external debts in Turkey, using the Bootstrap ARDL test (McNown et al. 2018). The Bootstrap ARDL test is desired over traditional co-integration tests due to its ability to predict when resolving power and size limitation issues, and its corresponding features, which have not been addressed by traditional co-integration tests. The ARDL testing model is employed to investigate the coefficients amongst the selected variables. The findings from the ARDL test illustrate that there is a positive linkage between renewable consumption and Turkey's financial development. Furthermore, the outcomes illustrate that the coefficient of external debt is negative and significant. The results indicate that policymakers in Turkey must use the growth of the financial sector to minimize environmental degradation by promoting investment in energy and production through renewable energy sources. Furthermore, the research suggested that Turkey's policy-makers should reformulate the external debt policy to reduce the negative influence of external debt on sustainable energy development. This could potentially be achieved by removing any restrictions on international capital flow or barriers on foreign capital and foreign investment. Hence, the findings of this paper provide valuable conclusions and recommendations for Turkey heading to sustainable and green financial sector.

1. Introduction

Turkey is an emerging country and Turkey’s energy consumption has rapidly grown especially over the last decades. For instance, Turkey’s oil consumption has risen from around 313,000 to 762,500 barrels each day over the period from 1980 to 2016. Whereas, the production of oil in Turkey rose from 41,000 barrels per/day to around 57,500 barrels per/day over the period from 1980–2016 (Fig 1). As a result of increasing oil consumption, greenhouse gas emissions (GHG) have increased from 1.72 metric tons in 1980 to 4.48 metric tons in 2014. On other hand, consumption of renewable energy as percentage of total energy consumption has decreased from 26% in 1985 to 12% in 2018 (Fig 2). In this sense, Turkey should find more sources for the energy supply formula by increasing renewable energy sources [1]. However, renewable energy resources are simply renewed and produced. Furthermore, these sources diffuse fewer pollutants to nature [2]. The main renewable energy sources in Turkey are biomass, wind, hydroelectric, solar, waves, and, geothermal. In this sense, Turkey has strong potential for growth of geothermal energy, including for power generation, and heating [3]. Furthermore, Turkey has high solar energy potential. According to the Ministry of Energy and Natural Resources of Turkey, the annual total sunshine duration is around 7.2 hours, and the annual total solar energy is 1,527 kilowatt-hours per square meter (kWh/m2). Turkey is in the first top 10 countries in terms of producing wind energy. Particularly Çanakkale and İzmir have very huge wind energy potential. Besides hydroelectricity potential of Turkey is equal to 16% of the hydroelectricity potential of Europe in terms of the economic sector. Moreover, Aegean, Mediterranean, and the Black Sea have high wave energy potential due to the geographic situations of Turkey [4]. However, Turkey does not have adequate technology to take advantage of wave energy; for instance, new systems should be developed for various wave sizes.

Fig 1

Oil production and consumption for 1980 to 2016 period in Turkey.

Source: world meters.

Fig 2

Renewable energy consumption for the period from 1985 to 2018 in Turkey.

Source: world meters.

Many empirical studies have explored the linkage between economic growth, and renewable consumption of energy; however, few studies tested the possible influence of external debt on their frameworks. However, the current paper aims to provide new perspectives to the empirical literature by exploring the linkage among real income, external debt, financial sector development, and the level of renewable energy consumption in Turkey, using the developed technique of bootstrap-ARDL model as introduced by [5]. In this context, the present study aims to present novel empirical evidence by testing the linkage among external debt, financial development, and Turkey’s renewable energy consumption using the novel techniques of bootstrap (ARDL) testing (McNown et al. 2018) [5].

However, the present study provides two main contributions to the current literature. First, to the best of our research knowledge, no empirical study examined the linkage among external debt and Turkey’s renewable energy consumption. Second, the current study provides robustness analysis by examining the linkage amongst the selected variables employing the novel techniques of bootstrap ARDL, this is desired over traditional co-integration tests due to its ability to predict when resolving power and size limitation issues, and its corresponding features, which have not been addressed by traditional co-integration tests. Furthermore, the current study aims to present valuable recommendations for Turkey’s Policymakers to achieve the sustainable environment.

The development of the financial systems is a crucial concern for Turkey, which strives to be one of the top 10 economies in the world. Environmental pollution is the main barrier preventing this development in Turkey [6]. Hence, policymakers need to devote more attention to the consequences of economic policies on CO2 emissions. In essence, the financial sector makes decisions about (whom to lend) and (what to invest). Therefore, their decisions affect business practices and investment [7]. When the financial sector provides funds for the investors, this will lead to boosting total factor productivity, capital accumulations, and promoting total factor productivity, thus, it will lead to an increase in the real income, and energy consumption [8, 9]. By taking the influence of financial sector development on the consumption of renewable energy, the current research can test the influence of financial sector policies on the consumption of renewable energy; in fact, the financial sector has a crucial role in attaining economic and financial stability through credit that provided to the markets. The financial sector should use this credit to support the investment in renewable energy sources [1].

On others hand, the external debt in Turkey increased significantly over the last decades from 19 billion US dollars in 1980 to 431 billion US Dollars in 2020 (Fig 3). Furthermore, the external debt in Turkey as a share of GDP increased from 25% to 50% in 2016. The enormous increment in external debt in Turkey may be attributed to the decrease in foreign capital inflow, and government revenues. However, with limited foreign exchange reserves in Turkey, local currency to US Dollar tumbled as much as 300% over the last 5 years. While the majority of Turkey’s external debt is composed in the US dollars, enormous increment in the level of external debt. All these factors increase the significant influence of external debt on Turkey’s economic performance. According to the literature, external debt in is evaluated as a negative impact on economic performance [10-15].

Fig 3

External debt in Turkey for the period from 1980 to 2016 in Turkey.

Source: world Bank.

However, testing the linkage among external debts, and energy consumption is still limited. In this sense, this research aims to inform policymakers about the linkage among the external debt and renewable energy consumption. The study suggests that there are several ways in which external debt may affect the consumption of energy. The first way is through the negative linkage between debt and real income. Theoretically, the debt overhang theory demonstrated that there is a negative linkage among debt and real income. The theory explained that the local and foreign investments will be decreased when the total debt exceeds the repayment ability of the country, which will subsequently cause the level of productivity and income to decrease [16]. However, the external debt affects negatively the financial strength of investment, which in turn will affect negatively the level of energy consumption. The second way is through a spillover influence of external debt on the fiscal policies. An example, an increase in the levels of debts may lead to adopting policies such as (increase the tax rates) to meet the country obligations. In this sense, the high tax rates can discourage the level of saving, investment, and innovation, which in turn will affect negatively energy investment and consumption. The third way is through spillover influence of external debt on borrowing costs for the individual and markets. An increase in the borrowing cost will subsequently cause the investment to decrease. Subsequently, it will cause renewable energy consumption to decline [17].

The structure of this paper as follows: the second section of this research is a review of literature; the third and fourth sections show empirical model, research methodology, and the research findings, the last section presents the conclusion of the current study.

2. Review of literature

2.1 Real income and renewable energy consumption

Many research considered the effect of real income on energy consumption. The empirical research on the relationship among consumption of energy and real income could be shown into four hypotheses, namely; (i) the growth hypothesis (GH), if there is a unidirectional causal linkage from consumption of energy to real income, the GH will be accepted [18]. (ii) The conservation hypothesis (CH), if there is a unidirectional causal linkage from real income to consumption of energy, the CH will be accepted [19]. (ii) The feedback hypothesis (FH), if there is a bi-directional causal linkage among real income and consumption of energy, the FH will be accepted [20]. (iv) The neutrality hypothesis (NH), if there is no causal linkage amongst real income and consumption of energy, the NH will be accepted [18].

However, the effect of real income on the consumption of energy in recent years has drawn extensive attention. In this respect; [19] used the FMOLS model; the findings showed that a bidirectional association exist in 80 selected countries over the tested period 1990–2007. Using the ARDL model [20], found that there is a positive connection between real income and consumption of energy in the BRICS members for the period 1971–2010. [21] utilized the Granger causality model and explored the effect of real income on consumption of energy in G7 countries over the period 1960–2010. The outcomes confirmed that the feedback hypothesis holds in Japan. The conservation hypothesis is relevant in Italy, the growth hypothesis is relevant in Canada, and the neutrality hypothesis is relevant in France, the United States, and the UK. In Turkey, [22] utilized the Granger causality test, and discovered a significant linkage between real income and consumption of renewable energy for the period 1970–2006, the findings showed the existence of the feedback hypothesis in Turkey. [23] confirmed that the feedback hypothesis (FH) is relevant in Turkey over the period 1992–2012. [24] indicated that Turkey has a large population and high energy consumption rates with high expectations for high economic growth. Moreover, [25], and [26] employed the causality test. The results show that there is association between Turkey’s energy consumption and real income in the 1985–2016 and 1988–2018 periods respectively.

2.2 Financial sector development and renewable energy consumption

Many empirical studies considered the influence of the development of the financial sector on real income and energy consumption. For instance [27-29], tested the impact of the development of the financial sector on real income. In this context, these studies suggested that an increase in investment and credit to the markets led to increase the real income. However, the growth of the financial sector is one of the central parts of financial sector development; in existing literature, some empirical studies that tested the linkage among financial sector development, and renewable energy consumption. In this sense: [28] revealed a positive association between the growth of the financial sector and renewable energy consumption in Turkey. [30] tested the linkage among financial sector development and consumption of renewable energy in India, over the period 1971–2015. Using the ordinary least squares test, the findings confirmed that there is positive link among financial development, and the level of renewable energy consumption in India [31]. Showed that there is a causal linkage between insurance sector development and Turkey’s renewable energy consumption. [32] used FMOLS test, and confirmed a positive association between financial development and consumption of renewable energy in BRICS countries. [33] tested the impact of financial development on consumption of renewable energy in 28 European countries, over the period 1990–2015. Using the fixed-effect panel model, the findings confirmed that financial development has a positive influence on the level of renewable energy consumption. [34] tested the impact of financial development on the consumption of renewable energy in China, over the tested period 1990–2015. Using the ARDL testing model, the findings confirmed that financial development affects positively the level of renewable energy consumption in long run. However, the findings of these papers indicate that financial growth plays an essential part in strengthening and enhancing the financial system’s economic performance, which can affect economic activity and energy consumption.

2.3 External debt and renewable energy consumption

External debt is a component of the total government debt that a country owed to foreign lenders. The prime reason for a country borrowing from foreign creditors is that the estimated expenditure exceeds the expected revenues of the country. Theoretically, the debt overhang theory showed that there is a negative linkage between debt and real income. The theory explained that the local and foreign investments will be decreased when the total debt exceeds the repayment ability of the country, which will subsequently cause the level of productivity and income to decrease [16]. Many empirical studies tested the linkage among external debts and real income. For instance [14, 35, 36], found empirical evidence to support the negative linkage among external debts and real income. In this sense [36], tested the influence of public debt on the real income in 12 European countries over the period from the 1970–2008. The outcomes illustrated that an increase in the level of debt will affect negatively the real income. [37] used the ARDL model, and indicated that there is an inverse linkages among debt and real income in Malaysia over the period from 1991 to 2009. [16] found that there is a negative impact of external debt on the economic growth in the middle-income countries over the tested period from 2002 to 2016. [35] tested the association between the debt and real in income in Turkey. The outcomes confirmed a negative linkage among the real income and debt in Turkey over the period from 2003–2017. However, limited papers have explored the linkage among external debt, energy consumption and environmental degradation. [38] used the ARDL model, and tested the influence of external debt on levels of carbon emissions in Turkey over the tested period from 1960 to 2013. The findings showed that there is important linkage among CO2 emissions, energy, real income and external debt in Turkey. [39] employed the ARDL technique to explore the effect of public debt on the level of CO2 emissions in China over the tested period from 1978 to 2014. The findings showed a positive and significant influence of external debt on the level of environmental pollution in China. [34] tested the linkage among public debt on the consumption of renewable energy in BRICS countries, over the examined period 1990–2016. Using the Panel testing model, the findings confirmed that public debt affects negatively the level of renewable energy consumption in BRICS countries. [40] tested the linkage among public debt and consumption of renewable energy in 20 selected emerging countries, over the period 1990–2016. Using the Granger causality test, the findings confirmed that there is a causal linkage among the level of debt and renewable energy consumption. Table 1 shows the summary of Literature review.

Table 1

Summary of literature of review.

Authors	Method	Year	Country	Result
Apergis and Payne (2012)	FMOLS	1990–2007	80 Countries	RI(+)REC
Erdal et al., (2008)	Granger Causality	1970–2006	Turkey	RI→←REC
Sentürk and Sataf (2015)	VECM	1971–2006	Turkey	RI = REC
Sebri and Salha (2014)	ARDL	1971–2010	BRICS	RI(+)REC
Ajmi et al., (2015)	Granger Causality	1960–2010	G7 Countries	RI→←REC
Samour and Pata (2022)	Granger Causality	1985–2016	Turkey	RI→←REC
Ocal and Aslan (2013) [41]	Toda Yamato test	1990–2010	Turkey	RI# REC
Beck et al., (2000) [42]	GMM	1960–1995	93 Countries	FSDI(+) REC
Aslan et al., (2014)	FMOLS	1980–2011	7 Middle East Countries	FSDI(+) REC
Haseeb et al., (2018)	FMOLS	1995–2014	BRICS countries	FSDI(+) REC
Eren et al., (2019)	DOLS	1971–2015	India	FSDI(+) REC
Anton and Nucu (2020)	Fixed effect model	1990–2015	28 European Countries	FSDI(+) REC
Wang et al., (2021)	ARDL	1990–2015	China	FSDI(+) REC
Hashemizadeh et al., (2021)	Granger causality	1990–2016	20 emerging countries	ED→←EC
Wang et al., (2021)	Panel model	1990–2016	BRICS countries	ED(−) EC

E is external debt, RE is renewable energy consumption, FSD is financial sector development, + means positive relation, − means negatvie relation, → ← means bidirectional causal linkage, # means no relation.

3. Empirical model

The prime aim of this research is to explore the linkage among real income, financial sector development, external debt and renewable energy consumption in Turkey. The theoretical linkage between real income, financial sector development, and external debt and renewable energy consumption in Turkey is expressed as follows:

ln is logarithm of tested variables. RE Represents Turkey’s renewable energy consumption, Rit is Turkey’s real income (2010 = 100) in US$ per capita, FS is credits provided by the Turkish banks to the (private-sector) as a share of GDP. E is external debt stocks, total (US$). Fig 4 shows the linkage among the variables. The data of this research is yearly data covering the period from 1980–2016. Table 2 shows a description of the tested variables and data sources.

Fig 4

Shows the linkage among the variables.

Table 2

Description of investigated variables.

Variable	Description
R I it	GDP (2010 = 100) in US$ per-capita
RE C it	Renewable energy consumption as share of total of energy consumption
FS D	Credits which provided by the banking sector to the (private-sector) as a (%) of GDP
lnED	External debt stocks, total (US$)

N, source of the data World- Bank (WB).

3.1 Stationary and co-integration tests

The classical unit roots tests do not include any date of a structural break(D-SB); To overcome this problem, This research employs (Perron and Vogelsang 1992 [43]), and Zivot-Andrews (2002) [44] unit roots tests with endogenously determined dates of structural break (D-SB). The study uses the novel technique of ARDL as updated by [5] McNown et al. (2018) to explore the linkage between renewable energy consumption, real income, external debt, and financial sector development in Turkey. This technique contains additional of (t−test t) or (F−test F) on the coefficients of lagged-independent tested variables. However, the null hypothesis of t test is: ∂1 = 0. The alternative hypothesis of t test is: ∂1 ≠ 0. While the null hypothesis of F test is: H0: ∂2 = ∂3 = ∂4 = 0. The null hypothesis of F test is: H1:: ∂2 ≠ ∂3 ≠ ∂4 ≠ 0.

The bootstrap ARDL critical values (CV) include the features of the combination integration of each time-series employing the ARDL bootstrap procedures. These steps will lead to overcoming the instability issue in the findings of traditional co-integration tests, as well as it will lead to provide a better result than other tests of co-integration. In this sense, the CV of ARDL bound test allows only for (one) tested variable to be endogenous, whereas in the updated ARDL test: the critical values allow for the endogeneity of selected explored variables [31]. Also, this technique is advisable for time-series that include more than (one) examined tested variable [45]. The co-integration amongst real income, financial sector development, and external debt on renewable energy consumption in Turkey will be determined if the values of F−, t−, F− higher than the CV bootstrap technique [5] (McNown et al. 2018). The ARDL testing approach equation is as follows: where ε1t symbolizes the error-term. Δ is the operator of the first difference. ln REt, lnRt, lnFSt, lnEt are variables of the study, n symbolizes the optimal of lags, which is selected bas on Akaike information criterion(AIC), the error correction model (ECM) is estimated by employing the Eq (2) ECT is the one period lagged EC. It reflects the velocity of adjustment amongst the selected variable. To affirm the outcomes of the ARDL testing approach. The current research employed the following diagnostic tests the normality test (D), the Breush-Pagan Godfrey heteroscedasticity (D), the ARCH test (D), B-Godfrey serial correlation test (D), Ramsey-Reset test (D), the multicollinearity test D. D is utilized to affirm the normal distribution of the tested model. D is utilized to affirm that there is that no problem of heteroscedasticity exists in the tested model. D and D are utilized to affirm that there is no autocorrelation in the study model. D is utilized to affirm that the tested model is stable. The multicollinearity test D used to affirm that there is no multicollinearity. Furthermore, Granger causality method is utilized to explore the causal interaction amongst the investigated variables. In this test, (EC) defines the short-term level variations of the variables studied from the long-term equilibrium level. The ECM formulated in equations (3 to 6):

Δ where Δ symbolizes the operator of the first difference, ε1t symbolises the error term, and ωECTt−1 is the lagged ECT. The causal linkage amongst the tested variables in the short-run level is tested applying the Wald test’s (F)statistics. Fig 5 shows the methodology structure of this research.

Fig 5

Shows the methodology structure of this research.

4. Empirical results and discussions

The findings of (ZA and PV) unit roots test shown in Tables 3 and 4; The findings show that RE, R, FS, E variables are stationary at the first difference (Δ). Hence, the selected variables have I(1) order of integration level. Thus, Eq (1) of this study is accepted as a tested model of co-integration.

Table 3

Findings of Zivot-Andrews test.

	At /level		At /Δ
Tested Variable	t−STAT	D-SB	Variables	t−STAT	D-SB
Ln RECt	-1.315	2011	ΔLn RECt	-8.665***	2013
lnRIt	-2.001	2001	ΔlnRIt	-9.391***	2009
lnFSDt	-2.989	1994	ΔlnFSDt	-8.401***	2006
lnEDt	-1.425	2003	ΔlnEDt	-9.965***	2013

Note

***indicate the significance of variables at 1 percent level.

Table 4

The Perron-Vogelsang test results.

	At /level		At/ Δ
Tested Variable	t−STAT	D-SB	Variables	t−STAT	D-SB
Ln RECt	-2.010	2001	ΔLn RECt	-7.661***	2008
lnRIt	-1.443	1996	ΔlnRIt	-6.003***	1994
lnFSDt	-1.998	1988	lnFSDt	-8.365***	1998
lnEDt	-2.315	2001	ΔlnEDt	-7.123***	212

***indicate the significance of variables at 1 percent Level.

The outcomes of Bootstrap ARDL testing of the co-integration approach are shown in Table 5. The findings show that F, t, and F values exceed Bootstrap CV. These findings provide significant evidence that there is a co-integration amongst RE, R, FS, E variables.

Table 5

The findings of the Bootstrap ARDL testing approach.

ARDL(0,1,1,0)		F Pesaran	t dependent	F independent
(REC, RI, FSD, ED)		6.80**	-4.45**	5.58**
Bootstrap-based table CV	5%	3.01	-3.76	4.50

** statistical sign at 5 percent level.

The coefficients of RE, R, FS, E in short and long-term were estimated through ARDL (Table 6). The findings demonstrate that a one % increase in real income increased renewable energy consumption by 0.81%, and 0.48 in the short run and long run respectively. These findings confirm a positive link among real income and renewable energy consumption in Turkey over the period from 1980 to 2016.

Table 6

Short and Long-run coefficients, ARDL.

Variable	ARDL	T-stat	p-value
ΔlnRIt	0.812***	2.411	0.00
ΔlnFSDt	0.019**	0.198	0.03
ΔlnEDt	-0.001*	-1.901	0.06
lnRIt	0.480***	1.651	0.00
lnFSDt	0.001*	0.094	0.08
lnEDt	-0.017*	-1.108	0.09
ECTt−1	-0.620	-3.109	0.00
R2	0.95	0.97	0.98
Diagnostic tests	p-value
D t1	0.410(0.820)	Dt6 multicollinearity test VIF
D t2	1.991(0.680)	Ln RECt 2.12
D t3	1.810(0.132)	lnRIt 1.02
D t4	1.001(0.450)	lnFSDt 3.42
D t5	1.991(0.890)	lnEDt 2.13

Note

*, **, ***means significance of the tested variables at 10%, 5%, 1% level, respectively.

Furthermore, the findings show that a one % increase in financial sector development increased Turkey’s renewable energy consumption by 0.019% in the short run and 0.001% in the long run. These results confirm a positive link among financial sector development and renewable energy consumption over the period from 1980 to 2016.

On the other hand, the empirical outcomes of this study demonstrated that a one % increase in external debt led to a decrease in renewable energy consumption by 0.001% in the short run, and 0.017% in the long run. These results confirm a negative link among external debt and renewable energy consumption over the period from 1980 to 2016. The study suggested that any increase in the total debt in Turkey will affect negatively economic growth and d investment, which may affect negatively real income, which in turn, it may lead to a decrease in the level of renewable energy consumption.

The finding of ECM is presented in Table 6. They reflect the adjustment velocity amongst the short-run level and long-run level. The diagnostic tests finding are shown in Table 6. The D test finding demonstrates that P-value in this test exceed the (5%) sig level, this finding confirms that the tested model of this paper has a normal distribution. The findings of the Brush-Pagan Godfrey heteroscedasticity D, the ARCH test D and the LM test D affirm that the model of this study is homoscedastic, and the tested model is well specified and homoscedastic, and there is no problem of heteroscedasticity exists in the model. The multicollinearity test D affirm that there is no multicollinearity problem in the examined model. Besides, Fig 6 (the CUSUM and CUSUMSquares) affirm that the tested model of this research is corrected over the tested period.

Fig 6

Cusum and CusumSquares tests.

It is highly essential to analyze the direction of causality among the estimated variables. Using this motivation, this study uses VECM to test both the short and long-run causal relationships that can only be used to the cointegrated series. The causal relationship amongst the tested variables helps us in crafting some appropriate policies to control oil consumption for sustainable growth in Turkey. The outcome reflects a causal interaction from real income, financial sector development, and external debt to Turkey’s renewable energy consumption in the long run. Furthermore, the findings from Table 7 display that there is a unidirectional causal relationship between real income and renewable energy consumption (lnR → lnREC). This result confirmed that the conservation hypothesis (CH) is valid in Turkey, this hypothesis signifies the existence of a unidirectional linkage between consumption of energy and real income. Thus, an increase in real income led to an increase in the level of renewable energy consumption. This outcome is consistent with [24]. On the other hand, the outcomes show unidirectional causal linkage from financial sector development to renewable energy consumption (lnFS → lnRE). This finding in agreement with [33] and [34]. However, this finding affirms that financial sector development can play a crucial role in attaining economic stability through credit provided to banks and markets. Hence, the outcome suggests that policymakers in Turkey must use the growth of the financial sector to minimize environmental degradation by promoting investment in energy and production through renewable energy sources. The findings of this paper are essential for Turkey in terms of diversifying the energy sources by increasing the consumption and investment in renewable energy sources. Therefore, Turkey needs to support the investment in renewable energy in the markets in order to reduce CO2 emissions in Turkey.

Table 7

Results of the Granger causality testing approach.

	ΔlnREc	ΔlnRI	ΔlnFSD	ΔED	ECTt − 1
ΔlnREc	-	6.1448*	6.2195*	7.6794**	-0.310**
ΔlnRI	1.6309	-	6.3151*	6.4383*	0.521
ΔlnFSD	2.0974	4.1202	-	2.1231	-0.410
ΔED	0.8265	8.5891**	4.0564	-	-0.329

Note

*, ** denote significance at 1, and 5% level.

On the other hand, the outcomes show unidirectional causal linkage from external debt to renewable energy consumption (lnE → lnRE), and there is the unidirectional causal linkage form lnE to lnR. This finding confirms that the external debts affect renewable energy consumption in Turkey through the real income channel. These results are in line with the theory of debt overhang theory. In this way, the local and foreign investments will be decreased when the total debt exceeds the repayment ability of the country, which will subsequently cause the level of productivity and income to decrease. However, the external debt affects negatively the financial strength of investment, which in turn it will affect negatively the level of energy consumption. The finding is in line with [34] and [40] who tested the linkage among public debt on the consumption of renewable energy, and confirmed that there is a positive linkage between the level of debt and renewable energy consumption.

According to the findings of the study, the external debt in Turkey is a significant barrier preventing sustainable energy development. Hence, the government policymakers should pay close attention to the negative impact of external debt on renewable energy by reducing the level of external debt. In this sense, the research suggested that government policymakers should reformulate the external debt policy to reduce the negative influence of external debt on sustainable energy development. This could potentially be achieved by removing any restrictions on international capital flow or barriers (such tariffs) on foreign capital and foreign investment. Furthermore, the policymakers in Turkey should adopt green energy policies by increasing the investment and production in renewable energy. Which in turn, it will lead to improve energy efficiency and decrease energy costs to achieve sustainable energy development.

5. Conclusion

In the review of literature, many empirical studies are focusing on the linkage between macroeconomic factors and energy consumption. They employ different models with different selected variables and tested periods, as well as different countries. This study fills gaps in empirical literature in two different ways, the first way; limited studies that tested the linkage among external debt and renewable energy consumption. The second way; this research is the first to test the linkage among tested variables using Bootstrap ARDL. The new test of the Autoregressive Distributed lag (ARDL) test as suggested by [5] is desired over traditional co-integration tests due to its ability to predict when resolving power and size limitation issues, and its corresponding features, which have not been addressed by traditional co-integration tests. In this regard, the primary aim of this paper is to provide fresh evidence by testing the linkage between renewable energy consumption, financial development, and external debts in Turkey, using the Bootstrap ARDL test [5].

The ARDL testing approach is utilized to investigate the coefficients between the tested variables. For the direction of causality, the Granger causality approach is employed as an estimation technique. The findings from the ARDL estimations show a positive association between real income and renewable energy consumption in Turkey. Moreover, the empirical outcomes confirm a positive linkage among financial sector development and renewable energy consumption. As a consequence, any increase in credits from banks to markets, will lead to a rise in projects and investment and strengthen risk management systems, which may lead to affect economic growth and consumption of energy. Moreover, the findings of current research show that there is a negative linkage among external debt and the level of renewable energy consumption in Turkey. The study suggests that there are several ways in which external debt can affect the consumption of energy. The first way is through the negative linkage among debt and real income when the total debt exceeds the repayment ability of the country, which will subsequently cause the level of productivity and income to decrease. However, the external debt affects negatively the financial strength of investment, which in turn it will affect negatively the level of energy consumption. The second way is through a spillover influence of external debt on the fiscal policies. An example, an increase in the levels of debts may lead to adopting policies such as (increase the tax rates) to meet the country obligations. In this sense, the high tax rates can discourage the level of saving, investment, and innovation, which in turn will affect negatively energy investment and consumption. The third way is through spillover influence of external debt on borrowing costs for the individual and markets. An increase in the borrowing cost will subsequently cause the investment to decrease; it will subsequently cause renewable energy consumption to decline. Hence, policymakers should pay close attention to the negative impact of external debt on renewable energy by reducing the level of external debt. In this sense, the research suggested that Turkey’s policy-makers should reformulate the external debt policy to reduce the negative influence of external debt on sustainable energy development. This could potentially be achieved by removing any restrictions on international capital flow or barriers (such tariffs) on foreign capital and foreign investment. Furthermore, the policymakers in Turkey should adopt green energy policies by increasing the investment and production in renewable energy. Which in turn, it will lead to improve energy efficiency and decrease energy costs to achieve sustainable energy development. Furthermore, the outcome suggests that policymakers in Turkey must use the growth of the financial sector to minimize environmental degradation by promoting investment in energy and production through renewable energy sources. Hence, the findings of this paper provide valuable conclusions and recommendations for Turkey heading to sustainable and green economic growth by diversifying their energy formulate by shifting towards more investment and consumption in renewable energy sources. However, the current study provided fresh evidence by testing the linkage between renewable energy consumption, financial development, and external debts in Turkey, using the bootstrap ARDL model, over the period from 1980 to 2016. The limitations of the selected data can be attributed to that some data is not available after 2016. Future empirical studies should be devoted to the investigation of the long-term linkage between different sectors of the economy and renewable energy using different panel methods.

23 Dec 2021

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Reviewers' comments:

Reviewer's Responses to Questions

Comments to the Author

1. Is the manuscript technically sound, and do the data support the conclusions?

The manuscript must describe a technically sound piece of scientific research with data that supports the conclusions. Experiments must have been conducted rigorously, with appropriate controls, replication, and sample sizes. The conclusions must be drawn appropriately based on the data presented.

Reviewer #1: Yes

Reviewer #2: Yes

Reviewer #3: Yes

**********

2. Has the statistical analysis been performed appropriately and rigorously?

Reviewer #1: Yes

Reviewer #2: Yes

Reviewer #3: Yes

**********

3. Have the authors made all data underlying the findings in their manuscript fully available?

The PLOS Data policy requires authors to make all data underlying the findings described in their manuscript fully available without restriction, with rare exception (please refer to the Data Availability Statement in the manuscript PDF file). The data should be provided as part of the manuscript or its supporting information, or deposited to a public repository. For example, in addition to summary statistics, the data points behind means, medians and variance measures should be available. If there are restrictions on publicly sharing data—e.g. participant privacy or use of data from a third party—those must be specified.

Reviewer #1: Yes

Reviewer #2: Yes

Reviewer #3: Yes

**********

4. Is the manuscript presented in an intelligible fashion and written in standard English?

PLOS ONE does not copyedit accepted manuscripts, so the language in submitted articles must be clear, correct, and unambiguous. Any typographical or grammatical errors should be corrected at revision, so please note any specific errors here.

Reviewer #1: Yes

Reviewer #2: Yes

Reviewer #3: Yes

**********

5. Review Comments to the Author

Please use the space provided to explain your answers to the questions above. You may also include additional comments for the author, including concerns about dual publication, research ethics, or publication ethics. (Please upload your review as an attachment if it exceeds 20,000 characters)

Reviewer #1: I am pleased to review the manuscript titled “.The linkage between renewable energy consumption and financial sector development in Turkey: The role of external debt” The authors have done well in structuring their study. Overall, the sections are elaborately written. Hence, I believe that this study can be considered for publication provided the authors are ready to revise their manuscript as per the minor comments provided below:

1. Title: If it is possible the authors may attempt to shorten the title.

2. Abstract: The abstract should include 1/2 lines at the beginning to provide a brief background of the study.

3. Introduction: The contributions of the study should be precisely highlighted.

4. The authors can provide more recent references related with renewable energy promotion.

Doğan, B., Driha, O. M., Balsalobre Lorente, D., & Shahzad, U. (2021). The mitigating effects of economic complexity and renewable energy on carbon emissions in developed countries. Sustainable Development, 29(1), 1-12.

Balsalobre-Lorente, D., & Leitão, N. C. (2020). The role of tourism, trade, renewable energy use and carbon dioxide emissions on economic growth: evidence of tourism-led growth hypothesis in EU-28. Environmental Science and Pollution Research, 27(36), 45883-45896.

5. Conclusion: Please mention the limitations of the study and mention the future research direction as well.

6. Please proof read the manuscript before submitting the revision.

Reviewer #2: In this paper, Bootstrap ARDL test is used to investigate the long-term and short-term linkages between renewable energy consumption and real income, financial development, as well as external debts in Turkey. For the direction of causality, the Granger causality is used as the estimation technique. Diagnostic tests (Normality test, BP test, ARCH test, LM test and Ramsey-Reset test) prove that the model in this paper is well set. And the CUSUM and CUSUM Squares tests affirm that the tested model of this research is corrected over the tested period. the findings of this paper provide valuable conclusions and recommendations for Turkey heading to sustainable and green financial sector. The contributions of this paper can be summarized as follows:

1. Enrich relevant literatures on the impact of real income, financial development and external debts on renewable energy consumption.

2. The use of newly ARDL test (Bootstrap ARDL) provides fresh evidence for studies on the impact of tested variables on renewable energy consumption in Turkey.

For further improving the paper, I have a number of comments and suggestions:

1. Equation 3 and Equation 4 are exactly the same, please rearrange this part to make it more organized.

2. Lines 65-68, you mentioned “the optimal of lags”. Please give the selection basis of optimal lags in the result analysis, is it AIC? SC? Or some other criterion?

3. In details. First, in lines 80-81, ARCH test should be heteroscedasticity test. Second, the inconsistent references. For example, you mention in section 2.1 that [21] supports the FH hypothesis, while in lines 178-183 you said that "This result confirmed that the conservation hypothesis (CH) is valid in Turkey" and that "This outcome is consistent with ([20]; [21])". Lines 207 -210 have the same problem for [32] and [36].

4. Many scholars have proved the correlation between financial development and real income ([25]; [26]; [27]), and between external debt and real income ([34]; [14]; [33]). Then, is there a high degree of collinearity when these three variables are included in the model? I suggest a multicollinearity test.

Reviewer #3: The author seeks to investigate the linkage among renewable energy consumption, financial development, and external debts in Turkey. Author could improve the manuscript based on the suggestions below;

1. on page 2, the author mentioned that “…limited studies tested the possible influence of external debt and financial development on their frameworks.”. This is not entirely true. There are several studies on financial development on renewable energy. see the study in this link https://doi.org/10.1016/j.apenergy.2021.118023 . You can also find several studies in the reference of the paper in the link above.

Please provide strong justification and contributions of your study. please the contributions on page 4 should be moved above and strengthened.

2. the current structure of the study seeks to investigate correlation between the variables of interest, given the potential endogeneity of the financial development, external debt and real income. I suggest author to desist from the use of “impact” or “effects” in the study.

3. on page 9, the whole of the second paragraph which starts with the sentence “….To explore the linkage ….” needs to be rewritten. For example, the sentence that starts with “..However, the new technique contains …” is not clear.

4. given that there could be cofounders which may drive the results, author should highlight the limitations of the study, especially the method.

**********

6. PLOS authors have the option to publish the peer review history of their article (what does this mean?). If published, this will include your full peer review and any attached files.

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Reviewer #1: No

Reviewer #2: No

Reviewer #3: No

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10 Feb 2022

Response to Reviewers ‘comments

Reviewer: 1

Comment:

Title: If it is possible the authors may attempt to shorten the title.

Response: Thank you very much for your valuable comment; we have changed the title to “Financial sector development, external debt, and Turkey’s renewable energy consumption”

Comment:

2. Abstract: The abstract should include 1/2 lines at the beginning to provide a brief background of the study.

Response: Thank you very much for your valuable comment; we have added 2 lines at the beginning of the Abstract.

Comment:

Introduction: The contributions of the study should be precisely highlighted.

Response: Thank you very much for your valuable comment; we have revised the contributions of the study in the introduction section.

Comment:

The authors can provide more recent references related with renewable energy promotion.

Doğan, B., Driha, O. M., Balsalobre Lorente, D., & Shahzad, U. (2021). The mitigating effects of economic complexity and renewable energy on carbon emissions in developed countries. Sustainable Development, 29(1), 1-12.

Balsalobre-Lorente, D., & Leitão, N. C. (2020). The role of tourism, trade, renewable energy use and carbon dioxide emissions on economic growth: evidence of tourism-led growth hypothesis in EU-28. Environmental Science and Pollution Research, 27(36), 45883-45896.

Response: Thank you very much for your valuable comment; we have added some recent studies related to renewable energy promotion for example Doğan, B., Driha, O. M., Balsalobre Lorente, D., & Shahzad, U. (2021). The mitigating effects of economic complexity and renewable energy on carbon emissions in developed countries. Sustainable Development, 29(1), 1-12.

Balsalobre-Lorente, D., & Leitão, N. C. (2020). The role of tourism, trade, renewable energy use and carbon dioxide emissions on economic growth: evidence of tourism-led growth hypothesis in EU-28. Environmental Science and Pollution Research, 27(36), 45883-45896.

Comment:

Conclusion: Please mention the limitations of the study and mention the future research direction as well.

Response: Thank you very much for your valuable comment; we have added limitations of the study and future research direction in the conclusion section.

Comment:

Please proofread the manuscript before submitting the revision.

Response: Thank you very much for your valuable comment, we have carefully proofread the manuscript revised, we checked all typos, grammar, and spelling in our manuscript.

Finally, we would like to thank you for your valuable suggestions. We believe your suggestions improved our study.

Reviewer 2

Comments

In this paper, the Bootstrap ARDL test is used to investigate the long-term and short-term linkages between renewable energy consumption and real income, financial development, as well as external debts in Turkey. For the direction of causality, the Granger causality is used as the estimation technique. Diagnostic tests (Normality test, BP test, ARCH test, LM test and Ramsey-Reset test) prove that the model in this paper is well set. And the CUSUM and CUSUM Squares tests affirm that the tested model of this research is corrected over the tested period. the findings of this paper provide valuable conclusions and recommendations for Turkey heading to sustainable and green financial sector. The contributions of this paper can be summarized as follows:

1. Enrich relevant literatures on the impact of real income, financial development and external debts on renewable energy consumption.

In this paper, Bootstrap ARDL test is used to investigate the long-term and short-term linkages between renewable energy consumption and real income, financial development, as well as external debts in Turkey. For the direction of causality, the Granger causality is used as the estimation technique. Diagnostic tests (Normality test, BP test, ARCH test, LM test and Ramsey-Reset test) prove that the model in this paper is well set. And the CUSUM and CUSUM Squares tests affirm that the tested model of this research is corrected over the tested period. the findings of this paper provide valuable conclusions and recommendations for Turkey heading to sustainable and green financial sector. The contributions of this paper can be summarized as follows:

1. Enrich relevant literatures on the impact of real income, financial development and external debts on renewable energy consumption.

2. The use of newly ARDL test (Bootstrap ARDL) provides fresh evidence for studies on the impact of tested variables on renewable energy consumption in Turkey.

For further improving the paper, I have a number of comments and suggestions:

1. Equation 3 and Equation 4 are exactly the same; please rearrange this part to make it more organized.

Response: Thank you very much for your comments. We have revised the equations 2, and 3 based on your comments.

Comment:

2. Lines 65-68, you mentioned “the optimal of lags”. Please give the selection basis of optimal lags in the result analysis, is it AIC? SC? Or some other criterion?

Response: Thank you very much for your comments and suggestion. We have revised it.

Comment:

3. In details. First, in lines 80-81, ARCH test should be heteroscedasticity test. Second, the inconsistent references. For example, you mention in section 2.1 that [21] supports the FH hypothesis, while in lines 178-183 you said that "This result confirmed that the conservation hypothesis (CH) is valid in Turkey" and that "This outcome is consistent with ([20]; [21])". Lines 207 -210 have the same problem for [32] and [36].

Response: Thank you very much for your valuable suggestion; we have revised that ARCH test.

For the references: we have revised and corrected it.

Comment:

Many scholars have proved the correlation between financial development and real income ([25]; [26]; [27]), and between external debt and real income ([34]; [14]; [33]). Then, is there a high degree of collinearity when these three variables are included in the model? I suggest a multicollinearity test.

Response: Thank you very much for your valuable comment; we have used the multicollinearity test to affirm that there is no multicollinearity problem in the examined model.

Finally, we would like to thank you for your valuable comments and suggestions. We believe your suggestions improved our study.

Reviewer 3

Comment:

Reviewer #3: The author seeks to investigate the linkage between renewable energy consumption, financial development, and external debts in Turkey. Author could improve the manuscript based on the suggestions below;

1. on page 2, the author mentioned that “…limited studies tested the possible influence of external debt and financial development on their frameworks.”. This is not entirely true. There are several studies on financial development on renewable energy. see the study in this link https://doi.org/10.1016/j.apenergy.2021.118023 . You can also find several studies in the reference of the paper in the link above.

Please provide strong justification and contributions of your study. Please the contributions on page 4 should be moved above and strengthened.

Response: Thank you very much for your valuable comment; we have revised and deleted the financial development form this paragraph. We have updated the contributions of our study and moved above.

Comment:

The current structure of the study seeks to investigate correlation between the variables of interest, given the potential endogeneity of the financial development, external debt and real income. I suggest author to desist from the use of “impact” or “effects” in the study.

Response: Thank you very much for your valuable comment; we have revised based on your suggestion

Comment:

on page 9, the whole of the second paragraph which starts with the sentence “….To explore the linkage ….” needs to be rewritten. For example, the sentence that starts with “..However, the new technique contains …” is not clear.

Response: Thank you very much for your valuable comment; we have revised it.

Comment:

given that there could be cofounders which may drive the results, author should highlight the limitations of the study, especially the method.

Response: Thank you very much for your valuable comment; we have added the limitations of the study, and future studies at conclusion section.

Submitted filename: renamed_2c177.pdf

Click here for additional data file.

7 Mar 2022

Financial sector development, external debt, and Turkey’s renewable energy consumption

PONE-D-21-36442R1

Dear Dr. Samour,

We’re pleased to inform you that your manuscript has been judged scientifically suitable for publication and will be formally accepted for publication once it meets all outstanding technical requirements. In this regard, the author(s) should implement the remaining revisions as recommended by the second referee.

Within one week, you’ll receive an e-mail detailing the required amendments. When these have been addressed, you’ll receive a formal acceptance letter and your manuscript will be scheduled for publication.

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If your institution or institutions have a press office, please notify them about your upcoming paper to help maximize its impact. If they’ll be preparing press materials, please inform our press team as soon as possible -- no later than 48 hours after receiving the formal acceptance. Your manuscript will remain under strict press embargo until 2 pm Eastern Time on the date of publication. For more information, please contact onepress@plos.org.

Kind regards,

Stefan Cristian Gherghina, PhD. Habil.

Academic Editor

PLOS ONE

Additional Editor Comments (optional):

Reviewers' comments:

Reviewer's Responses to Questions

Comments to the Author

1. If the authors have adequately addressed your comments raised in a previous round of review and you feel that this manuscript is now acceptable for publication, you may indicate that here to bypass the “Comments to the Author” section, enter your conflict of interest statement in the “Confidential to Editor” section, and submit your "Accept" recommendation.

Reviewer #1: All comments have been addressed

Reviewer #2: All comments have been addressed

Reviewer #3: All comments have been addressed

**********

2. Is the manuscript technically sound, and do the data support the conclusions?

The manuscript must describe a technically sound piece of scientific research with data that supports the conclusions. Experiments must have been conducted rigorously, with appropriate controls, replication, and sample sizes. The conclusions must be drawn appropriately based on the data presented.

Reviewer #1: Yes

Reviewer #2: Yes

Reviewer #3: Yes

**********

3. Has the statistical analysis been performed appropriately and rigorously?

Reviewer #1: Yes

Reviewer #2: Yes

Reviewer #3: Yes

**********

4. Have the authors made all data underlying the findings in their manuscript fully available?

The PLOS Data policy requires authors to make all data underlying the findings described in their manuscript fully available without restriction, with rare exception (please refer to the Data Availability Statement in the manuscript PDF file). The data should be provided as part of the manuscript or its supporting information, or deposited to a public repository. For example, in addition to summary statistics, the data points behind means, medians and variance measures should be available. If there are restrictions on publicly sharing data—e.g. participant privacy or use of data from a third party—those must be specified.

Reviewer #1: (No Response)

Reviewer #2: Yes

Reviewer #3: (No Response)

**********

5. Is the manuscript presented in an intelligible fashion and written in standard English?

PLOS ONE does not copyedit accepted manuscripts, so the language in submitted articles must be clear, correct, and unambiguous. Any typographical or grammatical errors should be corrected at revision, so please note any specific errors here.

Reviewer #1: Yes

Reviewer #2: Yes

Reviewer #3: (No Response)

**********

6. Review Comments to the Author

Please use the space provided to explain your answers to the questions above. You may also include additional comments for the author, including concerns about dual publication, research ethics, or publication ethics. (Please upload your review as an attachment if it exceeds 20,000 characters)

Reviewer #1: (No Response)

Reviewer #2: This paper does an empirical analysis on the nexus of external debt, financial development, real income and renewable energy consumption in Turkey using bootstrap ARDL testing, it can enrich literatures about relationship between financial development and renewable energy consumption. It has been revised appropriately according to the comments and suggestions raised by reviewers. Some mistakes have been corrected, some latest related literatures have been considered and updated in this paper and some typos and sentences have also been revised.

For further improving the paper, I have two more comments and suggestions:

Is it suitable for the last keywords of “Energy” as it is mainly analyzing about the nexus of renewable energy consumption, financial development and external debt rather than energy in this paper? May it be more appropriate to change the last keywords to “renewable energy consumption”?

In line 320, a more “Δ” appears before the word “where”, please double check it.

Reviewer #3: (No Response)

**********

7. PLOS authors have the option to publish the peer review history of their article (what does this mean?). If published, this will include your full peer review and any attached files.

If you choose “no”, your identity will remain anonymous but your review may still be made public.

Do you want your identity to be public for this peer review? For information about this choice, including consent withdrawal, please see our Privacy Policy.

Reviewer #1: Yes: Daniel Balsalobre

Reviewer #2: No

Reviewer #3: No

21 Apr 2022

PONE-D-21-36442R1

Financial sector development, external debt, and Turkey’s renewable energy consumption

Dear Dr. Samour:

I'm pleased to inform you that your manuscript has been deemed suitable for publication in PLOS ONE. Congratulations! Your manuscript is now with our production department.

If your institution or institutions have a press office, please let them know about your upcoming paper now to help maximize its impact. If they'll be preparing press materials, please inform our press team within the next 48 hours. Your manuscript will remain under strict press embargo until 2 pm Eastern Time on the date of publication. For more information please contact onepress@plos.org.

If we can help with anything else, please email us at plosone@plos.org.

Thank you for submitting your work to PLOS ONE and supporting open access.

Kind regards,

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on behalf of

Dr. Stefan Cristian Gherghina

Academic Editor

PLOS ONE