Links among energy intensity, non-linear financial development, and environmental sustainability: New evidence from Asia Pacific Economic Cooperation countries

Abstract

Environmental sustainability has gained much attention in the recent decade. This study examines the links among energy intensity, non-linear financial development, and environmental sustainability in the presence of economic growth of the Asia Pacific Economic Cooperation (APEC) countries from a period of 1990–2016. We apply advanced econometric methodologies for empirical analysis. Empirical results support the presence of inverted U-shaped Environment Kuznets Curve (EKC). Our linear function findings indicate that energy intensity, financial development, and economic growth are positively associated with the ecological footprint. However, these variables are negatively related to APEC countries’ ecological footprint in the non-linear phase. These results support the EKC hypothesis for APEC countries. We found a positive relationship between energy intensity and ecological footprint, indicating that energy intensity is associated with deteriorating environmental sustainability. We confirm a financial development-driven U-shaped link with an ecological footprint at a maximum turning point of −7.9653. There are U-shaped and N-shaped EKC relationships between economic growth and ecological footprint at a maximum and minimum turning point of −8.07029 and 23.5465, respectively. Overall, at the initial stage, financial development and economic growth deteriorate the environment to a point after which it improves. Policymakers are encouraged to advocate technological advancements, address market failure, get the price right by pricing the pollution like carbon pricing, reforming inefficient subsidies, and decouple the links between environmental vicious and economic goods. Study limitations and directions for future research in the area have been discussed as well.