Potential influential economic indicators and environmental quality: insights from the MERCOSUR economies

Abstract

This research investigates the dynamic effects of stock markets, economic globalization, and financial development on environmental quality. We used the annual panel data of Southern Common Market (MERCOSUR economies) covering the period 1990 to 2016. Through updated econometric methodologies, first, we substantiated cross-sectional dependency, stationary level, and panel cointegration among scrutinized variables, which is purely done for reliable findings. After that, we deployed the Generalized Method of Moment (GMM) approach to get vigorous elasticities of all the specified regressors. Elasticities of GDP and its square corroborate that the environmental Kuznets curve exists between income level and carbon emission. Empirical verdicts postulate that the development of stock markets and energy ingestion accelerate to air pollution by assisting carbon dioxide emissions while economic globalization and financial sectors are playing a pivotal role in augmenting the environmental quality of the MERCOSUR economies. Economic globalization and financial development have a significant negative influence on CO2 emission. The Pooled Mean Group (PMG) estimator robust our findings and provide the speed of adjustment (54.5022%). Moreover, Dumitrescu-Hurlin Panel Causality (DHPC) test depicts that economic globalization, financial sectors, energy use, and real income significantly cause carbon emissions in the case of MERCOSUR economies. In the end, the authors have proposed some policy implications to legislators and policymakers.