Financial Development, Renewable Energy Consumption, and CO₂ Emissions in Ghana: A Short-Run ARDL Analysis

This study analyzes the short-term effects of financial development, consumption of renewable energy and carbon dioxide (CO₂) emissions in Ghana from 1990-2025. It uses the Autoregressive Distributed Lag (ARDL) method, utilizing yearly time series data; the short-term estimate of ARDL contains 33 observations. Renewable energy consumption has a negative and statistically significant effect on emissions. The estimated coefficient of -1.092 represents that as renewable energy consumption increases by 1%, CO₂ emissions decrease by approximately 1.092% if all other variables remain constant. Financial development does not have a statistically significant effect. Gross fixed capital formation and trade openness do not have a statistically significant effect. In the short run, while current GDP growth does not significantly affect emissions, the prior period's income growth is associated with a reduction in CO₂ emissions, suggesting a delayed efficiency effect.The ADF and Zivot-Andrews tests do not find stationarity for the logged variables at the level, therefore first-difference tests need to be conducted to verify integration orders and the appropriateness of ARDL bounds testing. Diagnostic tests performed on residuals did not indicate any statistically significant evidence of serial correlation, heteroskedasticity or functional form misspecification at traditional levels. These results indicate that priority should be given to deployment of renewable energy because it replaces carbon intensive generation. Financial and investment policies should be designed to encourage low carbon generation and their impact monitored. These results are conditional short-term effects and do not represent causation or long-term effects.