Financial Development and CO2 Emissions in Post-Transition European Union Countries

Yilmaz Bayar,Andrei Maxim,Laura Diaconu (Maxim)

doi:10.3390/su12072640

Abstract

Carbon dioxide emissions are on the rise, posing a serious global issue. Therefore, it is important that policymakers identify the exact causes of these emissions. This paper investigates the influence of financial development, primary energy consumption, and economic growth on CO2 emissions in 11 post-transition European economies. The assessment was made for the 1995–2017 period using panel cointegration and causality analyses. The causality analyses did not reveal significant connection between financial sector development and CO2 emissions, but rather a two-way causality between primary energy consumption and economic growth, on one hand, and CO2 emissions on the other. Meanwhile, long-run analysis disclosed that financial sector development and primary energy consumption positively affected CO2 emissions. Our results seek to grab the attention of policy makers, who could work towards creating country-specific strategies that balance the relationship between financial development and CO2 emissions. These long-term policies could ensure both development of the financial sector and environmental protection.

Highlights

Global climate change is the biggest environmental problem of the 21st century and a subject of debates among scientists, policymakers, and environmentalists
This paper focuses on the influence of financial development, primary energy consumption, and economic growth on CO2 emissions in 11 post-transition economies (Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia) during 1995–2017
We explored the short- and long-run effects of financial sector development, together with economic growth and primary energy consumption, on the CO2 emissions in 11 post-communist European Union (EU) countries

Summary

Introduction

Global climate change is the biggest environmental problem of the 21st century and a subject of debates among scientists, policymakers, and environmentalists. Most research works studying the relationship between economic growth and CO2 emissions started their analysis by using the Kuznets hypothesis, which states that as a country begins to develop, there is a positive relationship between economic growth and environmental degradation. Most of the studies that were conducted after 2000 and that focused on the relationship between economic growth and CO2 emissions have started to include energy consumption in their analyses. Our research will make a significant contribution to the literature because exhaustive empirical study of the impact of financial development on environmental quality in these economies has not been done yet. Another novel aspect of this research work is its methodological approach.

Literature Review

Data and Method

Results and Discussions

Conclusions and Policy Implications