Navigating the Impact of Renewable Energy, Trade Openness, Income, and Globalization on Load Capacity Factor: The Case of Latin American and Caribbean (LAC) Countries

Abstract

Considering relatively high but recently decreasing environmental quality in the LAC countries with regard to the world, this study uncovers the progress of environmental quality, which is proxied by load capacity factor (LCF). In this context, the study considers renewable energy, trade openness, income, and globalization as explanatory indicators; uses data from 1990 to 2018; applies pooled mean group autoregressive distributed lag (PMG-ARDL) approach as the main model; and performs panel Toda-Yamamoto (PTY) causality test as robustness model. This is important because the LAC countries have ecological reserves, whereas many countries have an ecological deficit. For this reason, the investigation of the LAC countries has significance for the environmental quality in the world. Also, this study has novelty in terms of examining LAC countries and using the LCF as the environmental quality. The results present that (i) renewable energy has an improving impact on the LCF in both the short run and the long run; (ii) trade openness has a stimulating impact on the LCF in the long run; (iii) however, globalization and economic growth have a degrading impact on the LCF in the long run. Hence, it can be drawn from the results that renewable energy and trade openness have a critical impact on preserving and developing environmental quality. In line with the empirical findings, it can be proposed that LAC countries should utilize renewable energy effectively, improve trade volume through trade openness, increase renewable energy technology import, and expand the use of renewable energy in foreign trade activities. Thus, effective renewable energy and foreign trade policies can promote the achievement of sustainable development goals (SDGs) in the LAC countries.