Biofuels, green finance, and economic expansion: empirical evidence from the European Union

Abstract

This study examines the role of biofuel production and consumption, alongside green finance, in driving economic expansion within the European Union (EU). Employing panel data from EU countries spanning 2001–2022, the analysis follows a rigorous econometric approach. The econometric approach includes unit root tests (Im–Persaran–Shin and ADF), panel cointegration tests (Pedroni and Kao residual tests), cointegrating regressions (FMOLS and DOLS), and robustness tests (fixed effects, random effects, and systems GMM). The findings reveal that both biofuel production and consumption significantly contribute to the EU’s economic expansion, reinforcing the circular economy framework. In addition, green finance enhances biofuel consumption, further supporting economic growth. The findings also reveal that biofuel production and green finance have a more significant effect on smaller economies than on larger ones. These insights underscore the need for EU policymakers to prioritize cost-effective biofuel production and implement strategies that stimulate consumption, fostering long-term sustainable development.