Assessing the Impact of AI Innovation, Financial Development, and the Digital Economy on Load Capacity Factor in the BRICS Region

Abstract

This study explores the impact of AI innovation, financial development, and the digital economy on the Load Capacity Factor (LCF) in BRICS nations from 2000 to 2019. Cross-sectional dependence and slope homogeneity tests reveal that the variables exhibit both dependence and heterogeneity. Panel unit root tests confirm stationarity, and a cointegration analysis establishes long-term relationships among the variables. The Panel ARDL method identifies a U-shaped relationship between income and LCF, supporting the LCC hypothesis. AI innovation and the digital economy positively influence LCF, promoting environmental sustainability. Conversely, financial development significantly reduces the LCF in both the short and long terms. To validate these findings, robustness checks using DKSE (Driscoll Kraay Standard Error), AMG (Augmented Mean Group), and CCEMG (Common Correlated Effects Mean Group) estimation techniques yield consistent results with the Panel ARDL analysis. Furthermore, the D-H causality test reveals unidirectional causal relationships from income, financial development, and the digital economy to LCF. It also identifies a bidirectional causal relationship between LCF and AI innovation. These findings highlight the dual role of AI and the digital economy in enhancing environmental sustainability while addressing the challenges posed by financial development in the BRICS nations.