Environmental degradation & role of financialisation, economic development, industrialisation and trade liberalisation

Abstract

This paper is a pioneering endeavour to investigate the determinants of environmental degradation in Australia through a comprehensive framework of EKC and STIRPAT. Specifically, the impacts of multiple factors of socio-economic development including economic growth, trade openness, industrialization, energy consumption on CO2 emissions are analysed. Furthermore, the influences of financial development through different dimensions (financial efficiency, access and depth) in two subsectors (financial markets and institutions) and other proxies of financial development are focused over the period 1980–2014. Empirical results show short as well as long-run differences in the association among the variables. Short-term bidirectional causality prevails between economic growth, energy consumption, industrialization, and stock market development with carbon dioxide (CO2) emissions. However, there is no significant evidence found on EKC. This is due to the long-run positive impact of financial development, energy consumption, and trade openness on CO2 emissions. Interestingly, the industrialization process is found to does not affect CO2 emissions. Empirical findings provide insight into why the quality of the Australian environment is truncated with frequent and widespread bushfires and suggest policymakers to have selective and strict environmental-friendly strategies to fulfil a sustainable development goal.