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Financial development is one of the key drivers of rapid economic growth as well as CO2 emission in the environment. This study aims to investigate the casual links between financial development and CO2 emission in G8 and D8 countries for the time period from 1999 to 2013. We used PCA to develop financial development index from its five sub-compone...
Contexts in source publication
Context 1
... although, Iran is included in D8 due to unavailability of data, it is not included in the analysis. Summary of data set is reported in Table 1. The detail of selected countries for both groups is given in the appendix. ...Context 2
... investigate the heterogeneous casual affect among underconsidered variables of both G8 and D8 panel, DH causality test is applied in both panels. The results from DH causality test are reported in Table 10. The results indicate that the majority of the variables such as CO 2 -GDP, ENR-FI, ENR-GDP, ENR-TOP, and GDP-TOP have one-way causality except FI-CO2 and ENR-CO 2 have 2-way but TOP-CO 2 , GDP-FI, and TOP-TOP have no causality in G 8 panel. ...Context 3
... although, Iran is included in D8 due to unavailability of data, it is not included in the analysis. Summary of data set is reported in Table 1. The detail of selected countries for both groups is given in the appendix. ...Context 4
... investigate the heterogeneous casual affect among underconsidered variables of both G8 and D8 panel, DH causality test is applied in both panels. The results from DH causality test are reported in Table 10. The results indicate that the majority of the variables such as CO 2 -GDP, ENR-FI, ENR-GDP, ENR-TOP, and GDP-TOP have one-way causality except FI-CO2 and ENR-CO 2 have 2-way but TOP-CO 2 , GDP-FI, and TOP-TOP have no causality in G 8 panel. ...Similar publications
At present, regional integrated energy system is considered as a novel form to improve the comprehensive energy efficiency and economy of the system by integrating multiple energy subsystems. The key link of integrated energy system planning and optimization is to determine the kind and installed capacity of source-side equipment, and how to make t...
Citations
... This result is some with the findings of Meo et al (2022) and Deng et al. (2023), who argue that FM can drive economic expansion and industrial activity, which in turn can exacerbate environmental degradation when environmental regulations are weak or poorly enforced. The positive relationship between FM and emissions suggests that without adequate environmental monitoring, FM growth may promote the prioritization of non-long-term sustainable investments (Shoaib et al., 2020). ...
... Financial markets and environmental quality are receiving increasing attention(Chishti et al., 2022). However, the available literature gives different results. Numerous studies have demonstrated a positive correlation between FM and CO₂ emissions.(Shoaib et al., 2020), suggesting that a well-functioning FM can mobilize funds for environmentally sustainable projects(Abid et al., 2022) and contribute to emissions reductions(Meo et al., 2022). In this context, renewable energy and green technologies require excellent FM support and facilitate the transition to a green economy, especially LC (Habiba et a ...
This study evaluates the impact of corruption control and financial markets on CO₂ emissions, including per capita emissions, in emerging economies, contributing to the green transition. Utilizing panel data from 28 emerging economies spanning 2003 to 2020, the research employs a GMM regression model to examine these effects.Findings reveal that financial market consistently correlates with higher CO₂ emissions, suggesting that economic expansion driven by financial growth can exacerbate environmental challenges if sustainability measures are not integrated.The effect of corruption control on emissions is more complex and context-dependent;while stronger anti-corruption measures are linked to increased emissions in some cases, this effect diminishes when considering governance quality factors such as accountability.Robustness checks affirm the stability of these findings, highlighting the intricate interplay between governance, financial markets, and environmental outcomes.This study contributes to the literature by providing new empirical evidence on the dynamic relationships among governance, financial markets, and environmental sustainability in emerging economies, underscoring the importance of targeted governance reforms and sustainable financial practices in mitigating climate change and promoting a green economy transition.
... Some studies report a positive relationship, suggesting that financial markets facilitate substantial investments in fossil fuel-driven activities, thereby increasing emissions (Hussain et al., 2023;Yu et al., 2023). For example, Shoaib et al. (2020) found a positive link between financial market development and CO 2 emissions in G8 and D8 countries. Conversely, other studies report a negative relationship, arguing that financial markets play a vital role in promoting sustainable growth and climate mitigation investments, which can reduce emissions over time (Darweesh et al., 2023;Svilokos et al., 2019). ...
... Studies in developed countries often show a negative relationship between financial market development and CO 2 emissions (Bayar et al., 2020), while research in emerging economies tends to indicate a positive relationship (Tao et al., 2023). Developed nations may have achieved a balance between economic growth and environmental protection, whereas emerging economies still heavily depend on fossil fuels for development (Shoaib et al., 2020). Thus, the impact of financial market development on CO 2 emissions is influenced by the extent to which financial resources support climate mitigation technologies. ...
Using a panel dataset of six emerging economies from 1990 to 2021, the study analyzed the moderating influence of financial institutions and markets on the deployment of Climate Mitigation Innovation (CMI) and its impact on carbon emissions. Our results from BRIICS countries (i.e. Brazil, Russia, India, Indonesia, China, and South Africa) reveal that sound financial systems significantly amplify the efficacy of CMI in lowering CO 2 intensity. This research contributes to the existing body of knowledge by elucidating the conditional dynamics between financial development, technological innovation, and emission outcomes. Insights from the study underscore that emerging countries should strengthen their financial sectors to effectively leverage CMI for substantial emission reductions. Ultimately, insights gleaned from this study contribute to the growing literature on green innovation and green finance and serve as a basis for policymakers to craft strategies that enhance sound financial environment while promoting green technological innovations.
... It is worth noting that existing state-of-the-art literature also portrays the harmful impact of the financial inclusion of the sustainable environment for many reasons. The development in financial resources, income level, makes luxury items approachable to individuals and institutions, say machinery, cooling & heating systems, and air conditioning etc., which leads to greater levels of CO2 (Habiba and Xinbang 2022;Lv and Li 2021;Petrović and Lobanov 2022;Shoaib et al. 2020). For instance, (Le et al. 2020) analyse the linkage between CO2 and financial inclusion in the Asian region. ...
... The results indicate a negative relationship between them. Shoaib et al. (2020) examine the association between financial growth in terms of financial inclusion and the emission of corban worldwide irrespective of region. They find an indirect relation between them. ...
This paper exclusively adds value to the state‐of‐the‐art literature, offering the combined impact of various conditions (variables) on environmental sustainability in the context of complexity theory. Unlike the conventional regression‐based research methods, the fuzzy set qualitative comparative analysis applies a novel configuration approach for analysing the data of 63 countries around the globe covering the period from 1990 to 2020. In addition, analytical induction is also used to diagnose existing patterns of solutions in the dataset. The input conditions are digital transformation, financial innovation, financial inclusion, foreign direct investment, and financial openness, while the outcome condition (variable) is an environmental sustainability. The necessary condition analysis shows no individual conditions indispensable for the outcome. However, sufficiency condition analysis discovers eight alternative solutions/ pathways, sufficient for the outcome. This study makes notable contributions to the existing body of knowledge that offers unique long‐term insights and practical solutions for academicians and policymakers working on sustainable environments worldwide, in particular.
... relationships (e.g., Shahbaz, Tiwari, and Nasir 2013;Abbasi and Riaz 2016;Shoaib et al. 2020). However, Thampanya, Wu, and Cowton (2021) argue that the connection between financial variables and climate risk varies across nations with different income levels and is more pronounced when nonlinearity is considered. ...
This study explores how temperature anomalies, a novel form of systematic risk, affect financial markets, expanding the traditional understanding of market‐wide risks. While climate change is becoming an important consideration, the extent to which temperature anomalies disrupt economic activities and influence stock returns is urgently needed to assess. Using data from 479 Thai companies (2010–2023), we apply linear and nonlinear autoregressive distributed lag (ARDL) models to examine the impact of temperature anomalies and investor sentiment on stock returns. Our findings reveal that (1) temperature anomalies significantly affect short‐term stock returns, especially when prioritising sustainability and environmental, social, and governance (ESG) factors; (2) public awareness, measured by Google Search Volume Index (GSVI), has a complex, nonlinear impact on the stock market; (3) temperature anomalies act like traditional risk measures, influencing stock returns similarly to market volatility. The study highlights the growing importance of climate change in financial decision‐making and offers insights into investor reactions to climate risks and economic sentiment. It emphasises the need to consider short‐term market reactions to climate‐related news and suggests that temperature anomalies could be viewed as a systematic risk in financial markets.
... For instance, research on Turkey , the Middle East, North Africa, and Sub-Saharan Africa (1990-2011) supports a two-way relationship, while Khan et al. (2019) found that economic growth drives emissions in a sample of 193 economies . Several studies (e.g., Mikayilov et al., 2018;Wang et al., 2019) confirm a direct association between output growth and emissions, though some (Acheampong, 2018;Shoaib et al., 2020) present evidence that growth reduces emissions. ...
... This effect is approximately of the same magnitude but insignificant in other contexts. Similar indirect nexus findings are evident in the studies by Acheampong (2018) and Shoaib et al. (2020). This relationship has been extensively investigated across various empirical frameworks. ...
... expansion, indicating that GDP per capita growth is associated with the incometotal emissions growth nexus. This dynamic relationship is evidenced by Solarin (2023), Halicioglu (2009), and Omri et al., (2014, 2015, with both direct Mikayilov et al., 2018;Tsaurai, 2018;Wang et al., 2019) and indirect effects (Acheampong, 2018;Shoaib et al., 2020). ...
This study explores the impact of environmental shocks in major remittance-receiving economies, analyzing the influence of total factor productivity, personal remittances, renewable energy consumption, industrial value-added, population growth, and per capita income on emissions from 1990 to 2019. Using convergence theory, it assesses both short- and long-term effects of these variables on environmental outcomes. The study’s objectives align with UN SDGs, emphasizing the need for environmentally sustainable nation-states with minimal climate shocks, as outlined in SDG 11. Hybrid empirical models, such as Dynamic Fixed Effect (DFE), Mean Group (MG), and Pool Mean Group (PMG), were used to capture short- and long-term effects, while Common Correlated Dynamic Estimators (CCEMG, DCCE-MG) and Augmented Mean Group (AMG) evaluated long-term shocks. The Method of Moment Quantile Regression (MMQR) assessed impacts across different quantiles, and non-Granger causality tests explored causal relationships. The results indicate moderate cointegration in the DFE, MG, and PMG models. Remittances and population growth increase emissions in the short term, while renewable energy and per capita income reduce them. In the long term, productivity and industrial value-added drive emissions, but renewable energy and remittance shocks help mitigate them. The MMQR model shows that productivity, population growth, and income influence emissions across all quantiles, with renewable energy and remittance shocks having a more significant impact on reducing emissions at the extremes. Among other measures, policies should focus on reducing total emissions by encouraging collaboration between government, businesses, and households to mitigate greenhouse gases and slow climate change.
... In the short term, financial markets may focus on investments that do not immediately affect energy use, such as technological innovations or preliminary business expansions. Our findings are incongruity with Boutabba (2014), Zhang (2011), Shoaib et al. (2020, and Bhat and Ikram (2024), which suggest that financial development has a positive effect on Environmental degradation owing to higher energy consumption levels. ...
Purpose
This study examines the impact of various macroeconomic, financial and institutional factors, including foreign direct investment (FDI), financial development (FD), freedom dimensions and institutional sub-systems on CO2 emissions across 30 countries over 23 years (2002–2023). The research aims to uncover both the short-term and long-term effects of these variables on environmental sustainability.
Design/methodology/approach
A Pooled Mean Group – Autoregressive Distributed Lag (PMG-ARDL) model is employed to analyze panel data from 30 countries over the period 2002–2023. The model was selected using the Akaike Information Criterion (AIC) to account for both long-term and short-term dynamics in the relationship between the studied variables and CO2 emissions.
Findings
The results reveal that in the long term, most variables, including FDI, financial development and economic freedom, have significant impacts on CO2 emissions, with varying directions. In contrast, short-term effects are largely insignificant, indicating that the environmental impacts of economic and institutional factors are more pronounced over extended periods.
Research limitations/implications
The findings suggest that policymakers need to consider the long-term environmental consequences of economic and financial policies. For instance, while financial development and economic freedom may drive growth, they also contribute to higher CO2 emissions, necessitating a comprehensive and inclusive approach to sustainable development.
Originality/value
This study provides a comprehensive analysis of the interplay between financial, institutional and freedom dynamics and their impact on CO2 emissions, offering valuable insights for policymakers focused on achieving sustainable economic development. Using the PMG-ARDL model adds robustness to the findings by capturing both short-term and long-term effects.
... One line of studies argues that financial development helps reduce carbon emissions by supporting cleaner technologies and efficient practices (Tamazian and Rao 2010;Al-Mulali et al. 2015;Charfeddine and Kahia 2019;Ziolo et al. 2020;Khan and Ozturk 2021;Naseem et al. 2021Naseem et al. , 2023Kashif et al. 2024). Conversely, some studies suggest that financial development may actually increase emissions by fueling expansion and consumption that demand more energy (Dogan and Seker 2016;Bekhet et al. 2017;Lu 2018;Cetin et al. 2018;Ali et al. 2019;Shoaib et al. 2020;Du et al. 2024). A third perspective identifies a nonlinear or weak link, indicating that the relationship between financial development and emissions may vary by context or maturity of financial systems (Omri et al. 2015;Shahbaz et al. 2016;Saidi and Mbarek 2017;Jamel et al. 2017;Jiang and Ma 2019;Acheampong 2019;Zaidi et al. 2019;Acheampong et al. 2020;Ramzan et al. 2022). ...
... This paper explores the research questions from three perspectives. First, this study underscores the need for a more comprehensive approach to measuring financial development, addressing limitations in prior research that predominantly focuses on financial depth as the primary indicator (Tamazian et al. 2009;Jalil and Feridun 2011;Zhang 2011;Shahbaz et al. 2013Shahbaz et al. , 2016Shahbaz et al. , 2018Omri et al. 2015;Dogan and Turkekul 2016;Maji et al. 2017;Jamel and Maktouf 2017;Shoaib et al. 2020;Khan and Ozturk 2021;Ramzan et al. 2022). As pointed out by Levine (2005), a robust financial system should include not only financial depth but Economic Change and Restructuring (2025) 58:11 11 ...
... The second aspect emphasizes that the impact of financial development on carbon emissions depends on the maturity of a country's financial system (e.g., Al-Mulali et al. 2015;Shahbaz et al. 2016;Jiang and Ma 2019;Acheampong et al. 2020;Shoaib et al. 2020). Acheampong et al. (2020) examine 83 countries classified by the Morgan Stanley Capital International (MSCI) framework into developed, emerging, frontier, and standalone financial economies. ...
The growing emphasis on Sustainable Development Goals (SDGs) and Environmental, Social, and Governance (ESG) criteria has intensified interest in understanding how financial development influences carbon emissions. Theoretical and empirical literature has sparked debate on the connection between the two. Does financial development truly impact carbon emissions? This study delves into this question by incorporating three crucial dimensions. Firstly, this study adopts a comprehensive measure of financial development, encompassing the depth, efficiency, and accessibility of both financial institutions and markets. Secondly, this paper examines how these relationships vary across different levels of financial development. Thirdly, through employing the pooled mean group (PMG) methodology, this paper investigates these relationships while allowing for short-term adjustments. Using panel data from 82 countries covering the period 1990–2019, the findings reveal that countries with advanced financial systems can reduce carbon emissions by improving access to financial markets. In contrast, countries with lower financial development can achieve reductions by enhancing financial institution accessibility and financial market efficiency. For countries in the moderate stage of development, improving access to financial institution services alone can lower emissions. Overall, the findings suggest that a country's capacity to enact effective policies within its financial system to reduce carbon emissions hinges on its level of financial development.
... The findings suggest that FD has a harmful effect on an ecosystem. Several studies, such as Shoaib et al. (2020) in D8 and G8 and Kihombo et al. (2021) in West Asia and the Middle East, have identified a direct correlation between financial progress and environmental harm. FDI is acknowledged as an essential environmental variable that boosts efficiency and GDP by progressing innovation and capital creation (Alvarado et al. 2017).The influence of FDI on ecological health varies across countries and regions, leading to conflicting findings from different research. ...
This investigation analyses the influence of private AI investment and financial development (FD) on CO2 emissions in the United States, using the STIRPAT framework to account for the functions of GDP, population, and foreign direct investment (FDI). The data's robustness was verified through the application of a variety of unit root tests, which confirmed that the variables are free of unit root issues and exhibit a varied order of integration. The ARDL bound test was used to investigate the cointegration among the variables and it found a long-run equilibrium relationship. The ARDL model results show that income, FDI, FD, and population significantly increase CO2 emissions in both the short and long term. In contrast, we found that private investment in AI led to a significant reduction in CO2 emissions over these time frames. Additional estimations were conducted using FMOLS, DOLS, and CCR methods to verify the ARDL results, all of which attested to the initial findings' robustness. In addition, the study implemented a pairwise Granger causality test to illustrate the directional relationships between the variables. There is a unidirectional causal link between GDP, private AI investment, FDI, population, and CO2 emissions, according to the findings. Most notably, we observed bidirectional causality between CO2 emissions and FD. Diagnostic tests further corroborated the validity of the study's conclusions, confirming that the model is free from specification errors, serial correlation, and heteroscedasticity.
... Tamazian and Rao (2010) and Tamazian et al. (2009) illustrate that the growth of the financial sector offers many economic benefits, including increased investment opportunities, reduced borrowing costs, and enhanced energy efficiency, all of which contribute to decreasing CO 2 emissions. Rafique et al. (2020) observed that financial development led to a reduction in CO 2 emissions in the BRICS countries from 1990 to 2017. Abid et al. (2022) found a negative relationship between financial development and CO 2 emissions in the G8 countries-comprising the USA, UK, Germany, Italy, France, Canada, Japan, and Russia-during the period from 1990 to 2019. ...
... Khezri et al. (2021) argue that the expansion of the financial sector leads to increased energy consumption and subsequently raising CO 2 emissions. Shoaib et al. (2020) revealed that financial development increased CO 2 emissions in both G8 and D8 countries between 1999G8 and D8 countries between and 2013G8 and D8 countries between . Wang et al. (2020 analyzed the factors affecting CO 2 emissions in N-11 countries from 1990 to 2017, revealing a positive relationship between financial development and CO 2 emissions. ...
... Although financial development achieves economic benefits across various sectors in Jordan, environmental policies are ineffective. Our results corroborate previous studies, including those by Shoaib et al. (2020), Wang et al. (2020), Ahmad et al. (2020), Qayyum et al. (2021), Ling et al. (2022), and Khezri et al. (2021), all of which support a positive correlation between financial development and CO 2 emissions. However, our findings contradict the conclusions of Rafique et al. (2020), Abid et al. (2022), andUsman et al. (2022), who reported that financial development leads to a reduction in CO 2 emissions. ...
Jordan has made substantial strides in enhancing its economy by focusing on economic growth stimulants, which include financial development, foreign direct investment (FDI), and trade openness. However, these economic activities often lead to significant environmental risks. Despite their relevance, the existing literature has rarely examined the influence of these dynamics on environmental quality in the Middle East, particularly in Jordan. This study aims to investigate the influence of financial development, FDI, and trade openness on carbon dioxide (CO2) emissions in Jordan. To achieve this, the study employs the Autoregressive Distributed Lag (ARDL) technique and the Vector Error Correction Model (VECM) Granger causality approach, utilizing data sourced from the World Bank for the period from 1990 to 2022. The findings indicate that financial development, FDI, and trade openness positively impact CO2 emissions, thereby increasing environmental risks in both the short and long term. Additionally, there exists a bidirectional causal relationship between financial development and both FDI and trade openness, as well as between FDI and trade openness. It is imperative for Jordan to design strategies that balance economic growth with sustainable environmental practices.
... The EKC hypothesis offers one explanation for this dynamic, positing that as economies grow, environmental degradation initially increases but eventually declines as income levels rise and cleaner technologies are adopted (Shoaib et al. 2020). However, the relationship between economic growth and environmental quality is far from straightforward. ...
... While the relationship between FD, FDI, and CO 2 emissions has been the focus of numerous studies, the complexities surrounding these interactions in BRI economies remain insufficiently explored. Prior studies have largely focused on linear relationships, as indicated by the studies of Habiba, Xinbang, and Anwar (2022), Jiang and Ma (2019), Li and Wei (2021), Qamruzzaman (2021), and Shoaib et al. (2020), leaving significant gaps in understanding the nonlinear dynamics between economic growth and environmental impact. The closest study examined the role of FD on carbon emissions in BRI (Liu, Xu, and Zhao 2023). ...
... This result also aligns with the PH, indicating that a well-developed financial sector facilitates eco-friendly practices and investments, thereby contributing to environmental conservation and reduced CO 2 emissions. Our results align with those of Shoaib et al. (2020) and Zaidi et al. (2019), who found a favorable link between FD and CO 2 reduction. Conversely, Zheng et al. (2024) reported an adverse connection between FD and carbon footprint. ...
Given the pressing need for economies to mitigate climate change and champion carbon neutrality, this study investigates the threshold effects of financial development and foreign direct investment (FDI) on carbon dioxide (CO 2) emissions in Sub-Saharan Africa (SSA) within the Belt and Road Initiative (BRI) bloc, taking into account the moderating role of the regulatory environment. Drawing on the environmental Kuznets curve and the pollution haven hypothesis, the study utilizes the dynamic generalized method of moments (GMM) modeling, proposed by Arellano and Bover, to analyze panel data from 37 SSA countries spanning 1990-2022. The findings reveal that financial development in the banking, financial, and private sectors, along with FDI outflows, is associated with a reduction in CO 2 emissions. Conversely, FDI inflows are linked to increased CO 2 emissions. A curvilinear relationship is observed, where initial increases in financial development and FDI correlate with higher emissions, which decline beyond a certain threshold. Stronger regulations enhance the positive impact of financial development on reducing CO 2 emissions. Finally, the findings show a significant heterogeneous effect across the SSA regional blocs. These findings underscore the critical need for implementing stringent environmental regulations and promoting sustainable financial practices to mitigate negative environmental impact. This research provides both theoretical and practical insights into fostering a carbon neutrality agenda and advancing Sustainable Development Goal 13.
