Abstract
The paper investigated the impact of financial development on CO2 emissions in Nigeria from 1981 to 2019. In the process of investigating the impact, Augmented Dickey-Fuller and Philip Perron, as well as the Zivot-Andrew structural breaks, unit root tests were applied. Their results indicated that financial development, level of income, and CO2 emissions were stationary at the first difference and that of Zivot-Andrew structural breaks indicated a mixture of integration. Cointegration relationship among the variables was established through autoregressive distributed lag model bounds test. The autoregressive distributed lag model long-and-short run models results indicated that financial development and income level significantly negatively impact the CO2 emissions. The suggestion based on these results is that financial development and income level help in financing clean projects in the long-and-short runs. The Granger causality result revealed bidirectional causality from financial development to CO2 emissions, income level to CO2 emissions, and financial development to income level. The variance decomposition analysis indicates that financial development and income level have contributed less to CO2 emissions, and impulse response function results revealed that CO2 emissions respond negatively to shocks in financial development and income level. Therefore, we recommend expanding the Nigerian financial market in financing clean projects for a clean environment alongside checking income generation activities that bring about emissions of CO2, such as burning trees for charcoal production in the forest, among others.Keywords: Financial market development, CO2 emissions, ARDL approachJEL Classification: G20, Q53, C32
Highlights
The evolution of the financial development concept started in the 6th century BC-15th century A.D., and the concept continued to widen up to the present days, passing through several periods and terminological modifications beginning with the basic as a financial market to current clarification of financial development due to purposes and results (Čižo, Lavrinenko, & Ignatjeva, 2020)
The results revealed that financial development, trade openness, economic growth affected CO2 emissions in the long-run, and long-run causality exists from financial development, trade openness, and economic growth to CO2 emissions
The analyses revealed that financial development has a long-run negative impact on economic growth and that unidirectional causality exists from CO2 emissions to financial development
Summary
The evolution of the financial development concept started in the 6th century BC-15th century A.D., and the concept continued to widen up to the present days, passing through several periods and terminological modifications beginning with the basic as a financial market to current clarification of financial development due to purposes and results (Čižo, Lavrinenko, & Ignatjeva, 2020). One of the most excellent millennium development goals is providing a clean or fresh environment in the world to benefit from contemporary and clean technologies. The technologies that promote pollution emissions would become harmful to the globe in pollution and fair provision of short-term welfare to the societies. For sustainability in the long-term, these technologies from clean sources are crucial in realizing a clean environment. For the advancement of clean technologies, the financial sector needs to categorize the loans. The emissions of pollution and financial market development will create unmaintainable development in the globe due to ignorance (Claessens & Feijen, 2006;Mahmood, 2020)
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