Energy indices: A risk factor or not in the financial sector

This study tests the hypothesis; lower energy intensity and lower cost of energy do not foster financial development. To this end, we estimate a long-run econometric model based on three cointegrating techniques that correct for both the second-order bias and non-centrality bias, using data from Ghana. Different robustness checks were conducted to provide a justification for either the rejection/acceptance of the null hypothesis. On different accounts, we reject the null hypothesis. Thus, lower energy intensity and lower cost of energy foster financial development in the long-run. The negative effects of higher energy intensity and energy cost on financial development have important implications for the design of loan contracts and the behaviour of borrowers toward energy efficiency investments. Further, economic growth, democracy, and trade openness foster financial development. Keywords: Financial development, Energy savings, Energy cost, Ghana, JEL classification: G15, G21, Q4