亚开行-探索可再生能源投资的经济和非经济决定因素（英）

EXPLORINGTHEECONOMICANDNONECONOMIC

DETERMINANTSOFINVESTMENTSINRENEWABLEENERGY

GaziSalahUddin,Md.BokhtiarHasan,DonghyunPark,Md.SumonAli,andChristofferWadström

NO.740

ADBECONOMICS

August2024

WORKINGPAPERSERIES

ASIANDEVELOPMENTBANK

ADBEconomicsWorkingPaperSeries

ExploringtheEconomicandNoneconomicDeterminantsofInvestmentsinRenewableEnergy

GaziSalahUddin,Md.BokhtiarHasan,DonghyunPark,Md.SumonAli,

andChristofferWadströmNo.740|August2024

TheADBEconomicsWorkingPaperSeries

presentsresearchinprogresstoelicitcommentsandencouragedebateondevelopmentissuesinAsiaandthePacific.Theviewsexpressed

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itsBoardofGovernorsorthegovernmentstheyrepresent.

GaziSalahUddin(gazi.salah.uddin@liu.se)

isanassociateprofessorandChristofferWadström

(christoffer.wadstrom@liu.se)isalectureratLinköping

University,Sweden.Md.BokhtiarHasan(bokhtiar_bank@)isanassociateprofessorat

theIslamicUniversity,Bangladesh.DonghyunPark(dpark@)isaneconomicadvisoratthe

EconomicResearchandDevelopmentImpact,

AsianDevelopmentBank.Md.SumonAli

(mali7@)isPhDstudentattheUniversityofTexasatElPaso.

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ABSTRACT

Amidashiftingglobalenergylandscapedrivenbyconcernsaboutclimatechangeandfossilfueldepletion,thereisaheightenedneedtomovetowardsustainableenergysources.Althoughtherehasbeenasignificantincreaseininvestmentsinrenewableenergy(RE)globally,thereisstillaconsiderableshortfallinachievingsustainabilitygoals.ThisstudyisthefirsttoexplorethedeterminantsofREinvestments,consideringarangeofimportanteconomicandnoneconomicvariables.Theresearchemploysabalancedannualpaneldatasetcovering36countriesfrom2000to2020.Thefindingsindicatethat,indevelopedeconomies,industrialgrowth,environmentaltaxes,socialglobalization,andclimatevulnerabilitypositivelyinfluenceREinvestments,whileinflationandpoliticalinstabilityhavenegativeimpacts.Indevelopingeconomies,environmentaltaxes,socialglobalization,environmentaltechnologies,andclimatevulnerabilityarebeneficial,whileindustrialgrowthandoilpriceshaveadverseeffects.Thesefactorsaresignificantfor

policy,providinggovernmentsandpolicymakerswithvaluableinformationtocreate

specificstrategiestomeetglobalsustainabilitygoals.

Keywords:renewableenergyinvestments,economicandnoneconomicfactors,developedanddevelopingeconomies,paneldataestimates

JELcodes:C33,F64,Q50,Q42

1.Introduction

Recently,theglobalenergylandscapehasundergoneprofoundtransformations,drivenbyacombinationoffactors,suchasgrowingconcernsoverthenegativeimpactsofclimatechange,diminishingreservesoffossilfuels,theurgentneedtocutdowncarbonemissions,andtheinherentinstabilityinthemarketsforfossilenergy(Kilinc-AtaandDolmatov2023,OmriandJabeur2024).Inthisregard,worldleadershavemadecommitmentstolessentheuseoffossilenergy,acknowledgingitssubstantialcontributiontoglobalcarbonemissions,which,asestimatedbytheUnitedNations(2024),accountforapproximately90%.Escalatingcarbonemissionsisasignificantdriverofthecurrentclimatecrisis,leadingtowidespreadandsevereeffectsontheglobalecosystem(Silva

2008).Wethusfindourselvesinasituationwherefossilfuelreservesarecontinuouslydepleting,andthemarketsforfossilenergy,particularlyoilandgas,haveencounteredsignificantturbulenceinrecentyearsduetovariousgeopolitical,economic,andfinancialuncertainties.

Inlightofthesechallenges,theshifttowardsustainableandrenewableenergysourceshasbecomecrucialontheglobalagenda.Thistransitionisessentialtoaddressclimatechange,environmentaldegradation,andthepressingissuesofenergycrisesandsocioeconomicdisparities.Despitesubstantialglobalrenewableenergy(RE)investments,currentlyaround$2trillionannually,thereisasignificantgapcomparedtothe$5trillionyearlyinvestmentstipulatedbytheInternationalEnergyAgency(IEA)until2030,andbeyondto2050,fornet-zerocarbonemissions(Lenaerts,Tagliapietra,andWolff2021).Thisshortfallpersistsdespitewidespreadgovernmentalinitiatives.Understandingwhyrenewableinvestmentslagbehindthenecessarylevelstomeetglobalsustainabilitytargetsisacrucialandnotwell-exploredtopic.ThisstimulatesustoinvestigatethepotentialdeterminantsaffectingREinvestments.

ThefactorsinfluencingREinvestmentsarecomplex,involvingacombinationofeconomicandnoneconomicelements.Previousstudiesthathighlightaspectssuchaseconomicgrowth,governmentpolicies,subsidies,incentives,environmentaltaxation,andfossilfuelpriceshaveasignificantimpactonadditionalREcapacity,asnotedinresearchbyBourcet(2020)andRajendran,Krishnaswamy,andSubramaniam(2023).Additionally,noneconomicfactorssuchasglobalization,environmentaltechnologies,

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climatevulnerability,andpoliticalinstabilityarealsofoundtohaveanimpactonREdeployment(Bourcet2020;Rajendran,Krishnaswamy,andSubramaniam2023).Furthermore,recentstudieshavealsoindicatedthatnoneconomicfactors,althoughtheirexactimpactisnotunanimouslyagreedupon,couldhaveagreaterinfluenceonREcapacitydeploymentthaneconomicfactors,assuggestedintheresearchbyBourcet

(2020)andAbbanandHasan(2021).Thisraisesanimportantquestionthathasyettobeaddressed—whetherthesefactorsinfluenceREinvestmentssimilarlyastheirimpactonREcapacitydeployment.Theextenttowhichthesefactorsinfluenceinvestmentdecisionsandwhethertheyvaryacrossdifferentlevelsofeconomicresilienceremainsunclear.Itisaquestionwarrantingfurtherinvestigations.

Furthermore,thedifferencesinREinvestmentsacrosscountriesarestriking(Reboredo2015,AbbanandHasan2021).AsshowninFigure1,investmentsincleanenergypercapitaarenotablyhigherindevelopedeconomiescomparedtoemerginganddevelopingeconomies(excludingthePeople’sRepublicofChina[PRC]).Evenwithinthiscontext,itisimportanttonotethatthePRC’sinvestmentsalonesignificantlysurpassthoseofotheremerginganddevelopingcountries.AccordingtotheIEA(2022),thePRCledglobalcleanenergyinvestmentsin2021with$380billion,followedbytheEuropeanUnionat$260billionandtheUnitedStatesat$215billion.Hence,itappearsthatREinvestmentsaregrowingbuttheirdistributionacrosscountriesisuneven.Substantialbarrierscontinuetoexist,especiallyinemerginganddevelopingeconomies(AzarovaandJun2021).UnderstandingthesedisparitiesandthefactorsbehindthemisessentialforcraftingeffectivepoliciesaimedatincreasingREinvestmentsandachievingemissionsreductiontargets.

DespitetherecognizedimportanceofbotheconomicandnoneconomicdeterminantsofREinvestments,previousresearchinthisdomainhasexhibitedlimitations.PastliteratureprimarilyfocusedonREdeployment,measuredbyREconsumptionsorsupplyorshareintotalenergyorelectricity,toidentifyinfluencingfactors(CanŞeneretal.2018;Bourcet2020;Rajendran,Krishnaswamy,andSubramaniam

2023).Themajorityofearlierstudiesconsideredeconomic,environmental,andenergy-relatedfactorsofREuse,withfewstudiesaddressingpolitical,regulatory,anddemographicfactors(CanŞeneretal.2018;Bourcet2020;Rajendran,Krishnaswamy,

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andSubramaniam2023).Moreover,thefindingsofthesestudies,particularlyonnoneconomicfactors,failedtoproviderobustconsensusonthedeterminantsofrenewableenergydeployment(Bourcet2020,AbbanandHasan2021).

Figure1:Per-capitaCleanEnergyInvestmentinSelectedRegions,2020-2022

600

500

400

$billion

300

200

100

0

525

491

412

298

264269

40

42

44

202020212022

AdvancedeconomiesPRCEmergingmarketanddevelopingeconomiesPRC=People’sRepublicofChina.

Source:InternationalEnergyAgency.2022.WorldEnergyInvestment2022.

Furthermore,previousstudiesmainlyfocusedonthenationallevel,withanemphasisondevelopedoremergingeconomieslikethePRC,Germany,UnitedStates,andEuropeannations,whileoftenneglectingdevelopingeconomies(Bourcet2020).OnlyalimitednumberofstudieshavefocusedonREfromaninvestmentperspective,eventhoughREinvestments,measuredbyinstalledcapacity,aredeemedamoreappropriatemeasureforREdevelopment(AbbanandHasan2021).Althoughinformative,thesestudieslackcomprehensiveness,oftenexaminingonlyalimitednumberoffactorsandemployingconventionalmethodologies.Forexample,AbbanandHasan(2021)exploredtheinfluenceofgovernmentsystems(presidentialorparliamentary)onrenewableenergyinvestments(measuredbyinstalledcapacity)across60countries,revealingsignificantgovernmentnatureeffects.Similarly,usingpaneldatafrom34OrganisationforEconomicCo-operationandDevelopment(OECD)countriesandthe5BRICS(Brazil,theRussianFederation,India,thePRC,andSouthAfrica)countries,Kilinc-AtaandDolmatov(2023)employedinstalledcapacityasameasureofREinvestments,indicatingafavorable

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impactfromeconomicgrowth,renewablepolicy,andresearchanddevelopmentexpenditures.

Giventhebackgroundoutlinedhereandconsideringtheidentifiedgapsintheexistingliterature,thisstudyaimstothoroughlyinvestigatebotheconomicandnoneconomicfactorsthatmayinfluenceREinvestments.Thisstudyconsidersabalancedannualpaneldatasetencompassing36countriesfor21yearsspanningfrom2000to2020,furtherdividedintotwocategories:21developedeconomiesand15emerginganddevelopingeconomies.Thisdivisionisusedtoexaminewhethertheimpactofsamplefactorsdiffersbetweenthesetwogroups.Severaleconometrictoolsareemployed:PanelCorrectedStandardErrors(PCSE),FeasibleGeneralizedLeastSquares(FGLS),andPanelQuantileRegression(QR).ThePCSEanalysisrevealsthatindevelopedeconomies,factorslikeindustrialgrowth,environmentaltaxrevenue,socialglobalization,andclimatevulnerabilitypositivelyaffectREinvestments,whileinflationandpoliticalinstabilitynegativelyimpactthem.Conversely,indevelopingcountries,environmentaltaxrevenue,socialglobalization,environmental-relatedtechnologies,andclimatevulnerabilitypositivelyinfluenceREinvestments,butindustrialgrowthandoilpriceshaveadverseeffects.ThesefindingssuggestREinvestmentsareshapedbyacombinationofbotheconomicandnoneconomicfactors,withcleardisparitiesbetweendevelopedanddevelopingcountries.SimilarfindingsareunearthedbyFGLSmodelestimations.Therefore,thesefindingsarerobustasfurthervalidatedbyQRestimatesbutevidenceanoticeablevariationinresultsacrossquantiles.

Ourstudycontributessignificantlytotheextantliteratureinseveralkeyaspects.Firstly,itaddressesacriticalgapbyfocusingonthedeterminantsofREinvestments,bridgingasubstantialvoidleftbypriorstudiesthatpredominantlyconcentratedonREdeployment.ByutilizinginstalledcapacityasaproxyforREinvestments,thisstudyalignswiththeforward-lookingaspectsofinvestmentdecisions,offeringamoreaccuratemeasureofREdevelopment.Secondly,unlikeearlierresearch,thestudyalsoadvancestheunderstandingofREinvestmentsbyexaminingabroadersetofnoneconomicfactors,suchassocialglobalization,environmentaltechnologies,climatevulnerability,andpoliticalinstability,alongsidetraditionaleconomicvariables.Moreover,itextendsbeyondtheconventionalfocusondevelopedandemergingeconomiesbyincludingdeveloping

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countries,therebyuncoveringdifferencesintheimpactofthedeterminantsacrossmoreheterogeneouseconomicconditions.ThisdistinctionisvitalforpolicymakersasitshedslightondisparitiesinREinvestments,emphasizingtheneedfortailoredstrategiesbasedontheeconomicresilienceofeachgroup.

Methodologically,unlikepreviousrelevantstudies,thisstudyemploysmethodologiesthatencompassbothmean-basedandquantile-basedmethods.TheuseofPCSEasamean-basedtechniqueaddressescriticalissuesassociatedwithdataseries,includingnon-normality,heteroscedasticity,serialcorrelation,and,importantly,cross-sectionaldependence.Moreover,thismethodprovesparticularlyvaluablewhendealingwithasmallsamplesize,especiallywhenTislessthanN.ThestudyalsoutilizestheFGLSmodelforrobustness.Additionally,theadoptionofpanelQRasaquantile-basedapproachoffersanuancedexplorationofvariableinteractionsacrossdiversequantiles,rarelydocumentedinexistingliterature.Lastly,ourfindingsoffercrucialimplicationsforgovernmentsandpolicymakerstoformulateeffectivepolicies.ByuncoveringthedistinctimpactofdeterminantsonREinvestmentsindevelopedversusdevelopingcountries,ourresearchprovidesactionableinsightsforcraftingtargetedstrategies.Thisisparticularlypertinentinthecontextofglobalsustainabilitytargets,suchasthepursuitofnet-zeroemissionsby2050,underscoringthepracticalrelevanceandpolicysignificanceofourstudy.

Theremainderofthepaperisstructuredasfollows:Section2explainsthetheoreticalbackgroundandliterature,Section3describesthemethodologyanddiscussesthedataandpreliminaryanalysis,Section4presentstheresultsandtheirdiscussion,andSection5concludesthestudy.

2.TheoreticalBackgroundandLiterature

Aspreviouslydiscussed,determiningREinvestmentsinvolvesacomplexinterplayofeconomicandnoneconomicfactors.Economicdrivers,suchasindustrialgrowth,governmentsubsidiesandincentives,environmentaltaxationpolicies,fossilfuelprices,andinflation,collectivelyshapeinvestmenttrendsinRE.Forexample,increasedindustrialactivitiescanleadtohigherenergydemand,promptinginvestmentsinREtosustainablymeettheincreasingenergyneeds,especiallyindevelopedeconomies.

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PreviousempiricalevidencesupportsapositivecorrelationbetweeneconomicgrowthandREinvestments(Yangetal.2019,Kilinc-AtaandDolmatov2023),underscoringthepotentiallyfavorableimpactofindustrialgrowthindrivingREinvestments.Likewise,governmentsubsidiesandincentives,includingtaxcredits,grants,andattractivefinancingoptions,alongwithenvironmentaltaxationpoliciessuchascarbonpricingandemissiontaxes,mayhaveasignificantimpactondirectingREinvestments(Yangetal.

2019).Thesesubsidiesandincentivescanpotentiallylowertheinvestmentcostsforrenewableprojects.Additionally,highertaxesoncarbonemissionsornon-renewableenergysourcesmayfurtherincentivizeinvestorstochoosecleanerandREalternatives,makingthemmorefinanciallyappealingforinvestorsandexpeditingtheadoptionofREtechnologies(Shahbazetal.2022,Sarpongetal.2023).Moreover,asfossilfuelpricesriseandbecomemorevolatile,theymaydecreaseindemandwhilesimultaneouslyincreasingtheattractivenessofREoptions(BuckleyandTrivedi2021).However,itisimportanttorecognizethattheimpactofhigherfossilfuelpricesmaynotalwaysbeunequivocallyfavorableforRE.Forinstance,anincreaseinthepriceofonefossilfuelcanleadtogreaterutilizationofalternativefuelsasobservedwhengaspricessurgedin2021,resultinginapartialreturntocoalasapowersourceinsomecountries(Jaller-Makarewicz2021,GillyandJørgensen2022).InflationcanalsohaveadverseeffectsonREinvestments,sinceinflationarypressurescanraiseinterestrates(i.e.,thecostofcapital)andproject-relatedexpenses,therebyincreasingtheoverallcostofREprojects(Calthrop2022).

Noneconomicfactors,includingsocialglobalization,environmentaltechnology,climatevulnerability,andpoliticalinstability,wieldsignificantinfluenceonREinvestments.Inspecificcontexts,theimpactofthesefactorsmightbemorepronouncedthanthatofeconomicdeterminants.Forexample,socialglobalization,characterizedbyaheightenedawarenessofenvironmentalandsocialissues,cancontributetothepromotionofREinvestments(Salman,Ahmad,andAlvi2023).Associetiesgrowmoreconsciousoftheimplicationsofclimatechangeandtheimportanceofsustainability,thereisagrowingdemandforRE,resultingingreatersupportforREprojects(Sinha,Sengupta,andAlvarado2020;Zafaretal.2020).Moreover,advancementsinenvironment-relatedtechnologycanimprovethefeasibilityandappealofREinvestments(Sinha,Sengupta,

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andAlvarado2020;Qinetal.2021).Thesetechnologicalinnovationsleadtoincreasedenergyefficiency,reducedcosts,andimprovedreliability,renderingREprojectsmoreeconomicallycompetitiveandsustainable(MasiniandMenichetti2013,Sinhaetal.

2020).Likewise,regionsthatareparticularlyvulnerabletoclimate-relatedrisks,suchasareaspronetoextremeweathereventsorsea-levelrise,maydriveREinvestmentsastheneedtoincreaseresilienceandreducecarbonemissionsbecomesmoreapparent,promptinggreaterinterestinREsolutionscapableofmitigatingclimate-relatedrisks(Wenetal.2023).Finally,governmentspronetoquickdestabilizationduetounstablepoliticsposeasignificantbarriertoREinvestments.Insuchprecariouspoliticalcircumstances,thesuccessofREprojectsisoftencompromised,leadingindividualsandcompaniestodelayinvestinguntilpoliticalstabilityisretained(Zhangetal.2022,VanSongetal.2023).WhileheightenedgeopoliticalinstabilityandriskcandiscourageREinvestments,itcanalsoparadoxicallyincreasethedemandforRE,particularlyincountriesthatimportfossilfuels.Thisisbecausethesenationsmayseektodecreasetheirdependenceonfossilfuelsandlowerimportcosts,thuspotentiallyboostinginvestmentsinRE(Zhangetal.2022,Wangetal.2022).

3.MaterialandMethods

Themodeldescribedherespecifiesthedependentvariable,namelyREinvestments,asafunctionofasetofexplanatoryvariablesthatencompassbotheconomicandnoneconomicfactors.ThegeneralformofthemodelisexpressedinEquation1:

lnREIit=α+β1lnINDit+β2lnTRit+β3lnINit+β4lnoPit+β5lnGLoit+

β6lnERTit+β7lnvuLit+β8PIit+Eit,(1)

where,lnREI,lnIND,lnTR,lnIN,lnOP,lnGLO,lnERT,InVUL,andPIrepresentrenewableenergyinvestments,industrialgrowth,environmentaltaxrevenue,inflationrate,oilprice,socialglobalization,environment-relatedtechnology,climatevulnerability,andpoliticalinstability,respectively.αdenotestheintercept,Erepresentstheerrorterm,andβrepresentstheparametersandcanbeinterpretedaselasticitiesofthedependentvariablesrelativetoeachexplanatoryvariable.lnisthenaturallogarithmofeachvariable,idenotesthecross-sectionalunit(i.e.,thecountry),andtistime.

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Theanalysisstartsbytestingthecross-sectionaldependence(CSD),slopehomogeneitytest,andstationarityissuesinherentinpaneldata,acriticalconsiderationoftenencounteredinsuchdatasets.ConsideringthestationarityandCSDissuesoutlinedinsubsection4.1,thestudyadoptsKao’s(1999)test,asrecommendedbyliterature(e.g.,CamareroandTamarit2002;Gengenbach,Palm,andUrbain2005;Alametal.2015),toactivelyinvestigatethelong-run(equilibrium)associationorcointegrationamongthevariables.Kao’stest,recognizedforitssuperiorperformancewithsmallsamplesizes,particularlywhentime(T)islessthancross-sectionunits(N)(Gutierrez2003),adeptlyaddressesbothstationarityandCSDissues(Kao1999,CamareroandTamarit2002).

Giventheidentifiedcointegration,outlinedinsubsection4.2,andtheinherentdatasetchallengesmentionedpreviously,thestudyselectsthePCSEapproach,endorsedbyexistingliterature(e.g.,ReedandWebb2010,Millo2017,Adeleyeetal.

2023).Thismodeleffectivelyhandlesissuessuchasheteroscedasticityandserialcorrelation(Adeleyeetal.2023).EmpiricaltestingbyMillo(2017)andReedandWebb(2010)atteststothePCSEmodel’sabilitytoyieldprecisestandarderrorestimateswithminimalefficiencyloss,particularlyunderlargecross-sectionalunits(i.e.,N>T).Additionally,toassesstherobustnessandconsistencyofthePCSEestimates,thisstudyalsoincorporatestheFGLSapproach.SincebothestimatorscanyieldrobustestimationsinthepresenceofheteroskedasticityandCSDinthepaneldatasets(Millo2017,LeandNguyen2019),itwouldbeusefultocomparethefindingsandofferrobustandreliableoutcomes.

Giventhenon-normalityofalldataseriesacrosssamplesandthepresenceofpotentialtaileddependence,thestudyadditionallyemploysthepanelQRapproachproposedbyKoenker(2004).Thismethodcapturesheterogeneouseffectsacrossdifferentquantilesoftheconditionaldistribution,providingrobustestimatesinthepresenceofoutliers.ThepanelQRmodel,lesssensitivetotailbehaviorandoutlierscomparedtotraditionalmodelslikefixed-effectsorrandom-effects,isdeemedsuperiorforhandlingdistributionalheterogeneityinpaneldata(Galvao2011,Akrametal.2020).InadditiontoPCSEandFGLSanalyses,thepanelQRapproachisemployedbecauseitcapturesallsignificantvariationsbetweenpredictedandobservedvariablesandthusavoidsinaccurateregressioncoefficients(Akrametal.2020).

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3.1DataandDescriptiveStatistics

Thedatasetconsistsofannualpaneldatafor36economies,21developedand15emerginganddevelopingcountries,betweentheyears2000to2020.1Thetimeperiodandeconomiesarechosenbasedontheavailabilityofdataforvariablesused,whichpermitsestimationsusingstronglybalancedpaneldata.Moreover,thecountriesareorderedaccordingtotheirincomelevelbasedontheAtlasmethodoftheWorldBank.Thedependentvariable,REinvestments,isrepresentedbytheannualglobaladditionsinphotovoltaic(PV)capacity,particularlynewinstallations.ThisischosenbecausesolarPVandnewwindpowercapacitymakeupover80%ofglobalrenewableenergyinvestments(IEA2022).Inthisstudy,installedPVcapacityreflectsinvestmentinexpandingPVsolarenergycapacity,signifyingcommitmentstofutureREgeneration(AbbanandHasan2021).UnlikeothermetricssuchasREconsumptionandsupply,whichassessavailability,newPVcapacityoffersamoreforward-lookingandinvestment-focusedmetric.ThismoreaccuratelyreflectsthegrowthandexpansionofRE,makingitamoresuitableindicatorfortrackingadvancementsintheREsector(KimandPark2016,Bourcet2020,AbbanandHasan2021).

Furthermore,thestudyincorporateseighteconomicandnoneconomicfactors,encompassingindustrialgrowth(measuredbyindustryvalueaddedinconstant2015UnitedStates[US]dollars);environmentaltaxrevenue(measuredbyenvironmentaltaxes,fees,andcharges,deposit-refundsystems,andtradablepermitstotalvalueinUSmilliondollars);oilprices(measuredbyBrentcrudepriceinUSdollarsperbarrel);inflation(measuredbyconsumerpriceannualpercentage);socialglobalizationindex(measuredbypersonalcontact,culturalproximity,andinformationf