Financial expansion, innovation, and renewable energy in sustainable growth: evidence from OECD countries

This study investigates the nexus among financial expansion (FE), innovation (INN), renewable energy (RE), and sustainable economic growth (SEG) in 38 OECD countries over the period 1995–2024. The objective is to examine how financial development and technological INN jointly contribute to sustainable growth through the transition toward RE. Using annual panel data, the study employs second-generation panel econometric techniques that account for cross-sectional dependence and heterogeneous country effects, including the Cross-sectionally Augmented IPS (CIPS) unit root test, the Westerlund panel cointegration test, Common Correlated Effects Mean Group (CCEMG), Augmented Mean Group (AMG), and Pooled Mean Group (PMG) estimators, together with Dumitrescu–Hurlin panel causality tests. The empirical results reveal a stable long-run cointegrating relationship among the variables and show that FE, INN, and RE exert positive and statistically significant effects on SEG across OECD countries. INN has the largest long-run effect, while interaction estimates indicate that FE strengthens INN's growth-enhancing role and that INN improves RE's contribution to sustainable growth. The causality analysis further identifies bidirectional relationships between FE and SEG, and between INN and SEG, whereas RE exhibits a unidirectional causal effect on sustainable growth. These findings suggest that the complementarity between efficient financial systems, technological INN, and clean energy transition drives sustainable growth in OECD economies. The study contributes to the sustainable finance and green growth literature by providing comprehensive evidence from advanced economies and offering policy implications to strengthen green financial markets, increase investment in low-carbon INN, and accelerate RE deployment through coordinated, country-specific policy frameworks.