Financial Markets Development and Energy Consumption in D8 Countries

Given the limitation and scarcity of the natural resources and due to the important role of energy in development and growth of countries, determination of the factors affecting energy demand entails particular importance. In this paper, following the identification of the factors influencing the energy consumption, we estimate the effects of financial markets development, including development of banks and the stock market by employing variables like per capita national incomeand inflation, on the energy consumption and with using combinational data pattern of D8 countries in the period of 1988-2008. Results indicate the significant and positive effect of financial markets development on the energy consumption. The coefficients of banks development indicators obtained greater than stock development, that means the capital market is less developed in D-8 countries than the money market. The coefficients of energy intensity and urbanization are significant and positive too. But inflation has a negative effect on energy consumption. The results of this study emphasize the need for paying attention to the energy demand along with financial markets development in order to achieve planned economic growth.