Environmental implications of regional financial development on air pollution: evidence from European countries

Abstract

This study focused on the spatial effects of CO2 determinants, using data from 43 European countries between 1996 and 2018. Tests proved the existence of the spatial Durbin model. The findings indicate that the logarithm of GDP per capita, urbanization, and energy use have enhancing effects on CO2 emissions, but that these effects are meaningless for trade openness. Most of the coefficients provided insignificant results, while six financial development indicators were entered into the model in a straight line. The addition of the term "interaction between energy intensity and financial development" improved the effects of all of the components significantly. The phrase's negative and significant coefficient predicts increased energy intensity efficiency as a result of the development of multiple financial production components. The analysis of spatial effects reveals that control variables in adjacent countries have negligible effects on CO2 emissions. Overall, the findings show that CO2 emissions are falling as neighboring countries' productivity and financial development rise. The findings indicate that financial development in neighboring countries has comparable effects on CO2 emissions as domestic financial development. As a result of these findings, European countries have reached a point of financial integration.