Do financial development and energy efficiency ensure green environment? Evidence from R.C.E.P. economies

Abstract

The issue of climate change and environmental degradation has been prevailing for the last few decades. Yet economies are further expanding due to free trade agreement which accelerates the trade of energy and carbon intensive commodities across the regions. A prominent example of such free trade is the Regional Comprehensive Economic Partnership (R.C.E.P.), which mostly remains ignored. The current research study explores the influence of financial development (F.D.) and energy efficiency (E.N.E.F.) on carbon emissions in the R.C.E.P. economies. Also, this study analyses the role of economic growth and renewable energy on environmental quality during the period from 1990 to 2020. Panel data approaches such as slope heterogeneity, cross-section dependence, and the second-generation panel unit root test are used. The non-normally distributed variables are found cointegrated. Therefore, a novel method of moments quantile regression is used. The results demonstrate that F.D. and economic growth are positively associated with CO2 emissions. At the same time, E.N.E.F. and renewable energy consumption (R.E.C.) significantly reduce the emissions level and promote a green environment in all quantiles. The environmental Kuznets curve is found valid in the R.C.E.P. economies. These results are robust as validated by Fully-Modified Ordinary Least Square – a parametric approach. A two-way significant causal association exists between carbon-economic growth, carbon-F.D., carbon-R.E.C., and carbon-E.N.E.F.. The findings suggest an enhancement in R.E.C., improvement in the E.N.E.F. approaches, and implications for green F.D. in the region.