Financial instability and CO2 emissions: cross-country evidence

Abstract

In the energy economics literature, a few scientific studies are found on the topic of financial instability and environmental quality. The current study is an attempt to fill this gap by examining the association between financial instability, economic growth, energy consumption, trade openness, urban population and CO2 emissions in 54 developing economies using panel data from 1980 to 2016. For empirical analysis, we employ fixed effects, difference generalized method of moments (GMM) and system GMM estimator. Empirical evidence confirms that financial instability has a significant negative impact on CO2 emissions, whereas the increase in economic growth, energy consumption and urban population are harmful to the environment. The findings of this empirical study offer new outcomes for policymakers to design inclusive financial, economic and energy consumption strategies to reduce the adverse effect of environmental pollution.