The effect of trade and monetary policy indicators on the development of renewable energy in Latin America

Abstract

Purpose

This paper aims to investigate the effect of monetary policy indicators on Latin America’s renewable energy development. The authors conduct several regressions as well as a Principal Component Analysis (PCA) to unveil relationships among possible driving factors among others the current account balance, interest rates, money flow and energy trade balance for Latin America’s energy mix.

Design/methodology/approach

The analysis was a two-part process. First, the authors used multiple regression to identify if monetary policy affects the development of renewable energy usage at all. To investigate the singular effects of each of the nine macro-economic variables and four energy indicators, collected from the World Bank (2017) database, several regressions were run where the authors regressed each economic indicator on each energy variable. Then, the authors conducted a principal component analysis with all 13 variables.

Findings

The authors found a significant relationship between the clean energy share and governmental spending boosting GDP as well as a significant relationship between governmental spending and the amount of foreign exchange reserves. Declining net energy imports indicate that countries in Latin America are getting more and more energy autonomous for the price of building up huge amounts of foreign exchange reserves.

Research limitations/implications

Renewable energy indicators are not always available for all Latin American countries. Data tend to be scattered. However, sources such as the International Renewable Energy Agency and the World Bank database can be complementary.

Practical implications

The understanding of the effects and impacts of some of the monetary policy related indicators can provide insights for improving renewable energy financing policies. In turn, such policies can have increased influence on renewable energy sustainability and potentially contribute to improving environmental policies.

Originality/value

The specific impact of the selected variables on renewable energy has not been studied. This study attempts to discern the impact of such variables to understand how they influence the renewable energy mix. The insights can in turn inform and modify existing policies and guidelines as well as advise new policy.

Citation

Frutos-Bencze, D., Avdiu, K. and Unger, S. (2020), "The effect of trade and monetary policy indicators on the development of renewable energy in Latin America", Critical Perspectives on International Business, Vol. 16 No. 4, pp. 337-359. https://doi.org/10.1108/cpoib-04-2018-0037