Energy efficiency, technological innovation, and financial development-based EKC premise: Fresh asymmetric insights from developing Asian regions

Abstract

This study analyses the impact of energy efficiency, technological innovation, and financial development on carbon dioxide emissions in developing Asian regions. It considers both positive and negative effects and incorporates the concept of the environmental kuznets curve (EKC). Utilizing data from fifteen developing Asian economies from 1995 to 2021, the study employs a dynamic panel data approach to examine the relationship between the variables. More specifically, the study utilizes econometric techniques, such as the error correction model (ECM), to consider both short-term and long-term dynamics and estimate the size and direction of the effects. In addition, the study incorporates squared-term financial development variables to measure the non-linear effects and examine the existence of an inverted U-shaped EKC pattern. The findings indicate that when financial development experiences positive shocks, it tends to align with the U-shaped premise of the EKC. On the other hand, when financial development experiences negative shocks, it tends to result in environment-friendly outcomes. In addition, the study analyses the varying effects of fossil fuels and renewable energy sources during periods of both positive and negative shocks. Technological innovation is also assessed for its impact on environmental sustainability. In general, the approach integrates econometric modeling and theoretical frameworks to offer insights into the intricate relationship between energy efficiency, financial development, technological innovation, and CO2 emissions in developing Asian economies.