Role of financial development, economic growth & foreign direct investment in driving climate change: A case of emerging ASEAN

Environmental degradation is one of the major problems in the world recently and one of the United Nations’ (UN) sustainable development goals (SDGs). Emerging markets countries that have become major players in the global economy and the main source of world economic growth have great potential to contribute the environmental degradation due to increased economic activities. This paper investigates the impact of financial development and economic growth on environmental degradation in Asian emerging markets. A panel environmental degradation model using financial development from banking sector and capital market sector, economic growth, Foreign Direct Investment (FDI), and urbanization variables that are major determinants of CO2 emission as a proxy of environmental degradation. The periods considered were 1980 – 2018 for banking model, and 1996 – 2018 for financial sector model (banking sector and capital market sector). A panel data approach applied such as cross-section dependence, panel unit root, panel cointegration, Fully Modified OLS (FMOLS) and Dynamic Ordinary Least Square (DOLS). The empirical finding revealed that in Asian emerging markets there is positively long-term relationship between financial development from banking model with environmental degradation. Nevertheless, we do not find any long-term relationship between financial development from financial sector model with environmental degradation. Moreover, the quadratic negative signed for economic growth showed the existence of Environmental Kuznets Curve (EKC).

Using annual time series data from 1983 to 2019, this study examines the impact of economic growth, exports, energy consumption, and financial development on environmental deterioration in Bangladesh. The long-run cointegration of variables is investigated using Dynamic Ordinary Least Squares (DOLS) and Fully Modified OLS (FMOLS) approaches. The co-integration study demonstrates a long-term relationship between dependent variable and independent variables. The findings reveal that in the long run the primary determinants of carbon dioxide emissions are economic growth, energy consumption, export, and financial development are the primary determinants of carbon dioxide emissions. Except for energy consumption, the result shows that financial development, economic development, and export have a statistically significant long-run co-integration with environmental degradation (CO2 emissions and ecological footprint). The Environmental Kuznets Curve, a quadratic term for economic expansion, demonstrates a negative impact on environmental degradation (EKC). The key findings show and emphasize the need for sound policies for more equal economic and financial growth, as well as, environmentally sustainable financial services. According to the findings, the government should prioritize programs that reduce carbon dioxide emissions by strengthening the financial sectors. Also government should consider the role it plays in slowing environmental degradation and hence, directly enhancing environmental quality in Bangladesh.

The study examines the dynamic relationship between foreign direct investment (FDI) inflows, economic growth, and environmental degradation and investigates the long-run validity of the environmental Kuznets curve (EKC) and the pollution haven hypothesis (PHH) for selected Asian countries over the period 1990–2019. Additionally, this study aims to discover the longrun impact of energy consumption, globalization, and population density on environmental degradation by employing a panel cointegration approach, fully modified ordinary least squares (FMOLS), and dynamic ordinary least squares (DOLS). The findings provide clear evidence of the existence of EKC and PHH in Asian countries for the period 1990–2019 in the long run. The findings reveal that economic growth has a highly significant and positive role in depleting environmental quality, but this effect gets reversed in the long run as, after a certain turning point, economic growth increases, and the quality of the environment gets better. Moreover, FDI inflows and energy consumption have a positive long-run impact on CO2 emissions, thus contributing to environmental degradation. The study recommends that governments and policymakers should strategically devise and implement CO2 reduction policies, such as carbon pricing, to encourage economic growth and to improve the quality of the environment, with the ultimate goal being to achieve sustainable development. Moreover, the use of cleaner energy should be promoted, and innovations and technological developments should be encouraged for hydropower, wind power, solar energy and other facilities around the world.

The aim and novelty of this study consist of estimating the nexus between CO2 (carbon dioxide) emissions, energy use, economic growth, and financial development for ten Central and Eastern European countries (CEEC) over the 2000–2017 period, starting from Environmental Kuznets Curve (EKC) theory. The Fully Modified Ordinary Least Squares (FMOLS) method was used for testing the cointegration relationship. Granger causality estimation based on the Vector Error Correction Model (VECM) and Pairwise Granger causality test were applied to identify the causality relationships between the variables and to identify the direction of causality. The implementation of the tests led to significant conclusions. In the long run, the levels of CO2 emissions and energy use do not have any influence on economic growth. Furthermore, there is a bidirectional causality among economic growth in terms of GDP and financial development variables. Thus, increasing financial development will generate more CO2 emissions and more energy use, and increasing economic growth will lead to rising financial development. In the short run, increasing financial development will generate more CO2 emissions and will lead to increased energy use and economic growth. Also, a bidirectional causality is being revealed between financial development and CO2 emissions. This indicates that financial development may help to reduce CO2 emissions.

Environmental degradation: The role of electricity consumption, economic growth and globalisation

The role of financial development cannot be overemphasized for a sound and healthy structure of an economy. Also, a well-functioning and adequately regulated financial market is considered a prerequisite for reaping significant gains from foreign direct investments, which in turn could be channelled to enhance economic productivity. This empirical study explores the impact of financial development and foreign direct investment on economic productivity and the direction of causality between financial development and foreign direct investment on economic productivity respectively. The Autoregressive Distributed Lag (ARDL) Model, the Granger Causality Test and the Fully Modified Ordinary Least Squares (FMOLS) for robustness check were adopted as the main analytical techniques. The findings of the study indicate that financial development has significant but negative impact on economic productivity in Nigeria while foreign direct investment exerts a positive and statistically significant long-term effect on economic productivity. Additionally, Investment, Regulatory Quality, Inflation Rate, and Interest Rate are also discovered to have a negative impact on economic productivity in Nigeria. The Fully Modified Ordinary Least Squares (FMOLS) results further confirm these findings. This study thus recommends that Central Bank of Nigeria should initiate reforms that must be directed at improving the quality of financial development indicators and its services to meet the needs of foreign and domestic investors and the economy at large; the government should create an enabling environment, provide infrastructural facilities, and improve the quality of institution to enable Nigeria's economy to thrive productively given any global economic shocks.

Globalization and modernization have generated the new opportunities for Multinational Enterprises (MNEs) to invest in foreign countries. Especially, many emerging and developing countries are making efforts actively to attract foreign direct investment (FDI) inflow in the purpose of boosting economic growth and development. This paper investigates the determinants of Cambodia’s inward FDI within the time interval from 1995 to 2014. Panel co-integration approach, namely Full Modified Ordinary Least Square (FMOLS) and Dynamic Ordinary Least Square (DOLS) are proposed to estimate the long run coefficients. Our analysis shows that most of the variables are statistically significant except for population growth rate. Market size and financial development are, as expected, positively correlated whereas macroeconomic instability and cost of living are negatively associated but poor institution is, as unexpected, positively associated to inward FDI. The sign of ECT \((\mathrm {t}-1)\) coefficient from panel causality analysis is significantly negative for GDP to FDI equation. It is indicated that economic growth and FDI is bidirectional causal relationship in the short run and the long run. The result from measurement predictive accuracy obtained from out of sample ex-post forecasting (2013–2014) confirmed that panel DOLS has a good predictive power to apply the long run ex-ante forecasting of Cambodia’s inward FDI. Thus, our findings suggest that improving macroeconomic indicators, administrative barrier and financial instrument and development are the crucial policies to attract more inward FDI in the upcoming period.

Air pollution, global greenhouse gases (GHG), water pollution and water resources degradation are among the most serious environmental concerns that encounter the Qatar country. In nowadays, it is commonly known that the effects of environment degradation exceed its direct negative impacts on climate changes to cover its impacts on Human health, nation livelihood and cultural integrity. So, we advocate that understanding and determining factors explaining environmental degradation remain an important question of research. Moreover, by determining factors that explain environment degradation, policymakers, researchers and international institutions can help on recommending the adequate economic policies that can improve the environment quality and the live standing of inhabitants. In the empirical literature, the Environmental Kuznets Curve (EKC) is the most powerful tool used to investigate the relationship between environment degradation and some macroeconomics and financial variables. Following the EKC hypothesis, the relationship between economic growth and environment degradation is inverted-U shaped. From the economic perspective, this means that initially economic growth increases environment degradation and then declines it after a threshold point of income per capita. More specifically, at initial level of economic growth, an increase in income is linked with an increase in energy consumption that raises environment degradation. After reaching a critical level of income, the spending on environment protection is increased, and hence environment degradation tend to decrease. From an econometrical or statistical perspectives, the EKC hypothesis have been firstly tested using the basic EKC equation which relies the environment degradation proxy to the real GDP and to a nonlinear term of the real GDP (the squared real GDP). If the EKC hypothesis holds then the real GDP and the squared real GDP have respectively a positive and negative signs. This EKC hypothesis has been firstly introduced by Kuznets (1955) when examining the relationship between economic growth and income inequality which shows that this relationship is inverted U-shaped. Grossman and Krueger (1995) are the first to examine this relationship between environment degradation and economic growth in their seminal paper published on the Quarterly Journal of Economics. They found that this relationship is inverted U-shaped which validates the EKC hypothesis. Empirically, until now no consensus has been reached about the true nature of the relation between real GDP and environment degradation. Evidence for the EKC hypothesis is very mixed. Overall, the results seem to depend in many factors including the specification, the pollutants and the econometrics technique used. First, empirical studies show that the results in term of positive and negative relationships as well as in term of magnitude differ significantly for the same country depend on the specification studied, linear, quadratic or cubic. Moreover, the inclusion of other factors in the right hand of the regression such as urbanization, trade openness, financial development and political stability have a significant impact on the magnitude of the income per capita variables coefficients. Second, the results differ significantly following the environment degradation proxy used. For instance, Horvath (1997) and Holtz-Eakin and Selden (1995) suggest that the use of global pollutants leads to continuously rise the levels of environment degradation or to a high levels of income per capita turning point, see also Esteve and Tamarit (2011). Third, the results also seem to depend in the econometric approach employed. In this paper, we investigate the case of the Qatar economy for several reasons. First, Qatar 2030 vision has given a high importance to questions related to air pollution, climate change and their impacts on economic sustainability. Second, the rapid increase of economic growth of the Qatar economy in the last two decades has been accompanied with an increase in energy consumption, urbanization and international trade. These factors are among the most important factors largely used in theoretical and empirical literature to explain environment degradation. Third, following the world health organization (WHO), local air pollution levels in Qatar has frequently exceeded recommended levels and are more time higher than the international standards. In fact, compared to the WHO's standards for PM10 for the 24-hour average and for the annual average concentration of 50 ug/m 3 and 20 ug/m 3 the Qatar's national air quality standards are far from these values. For instance, the values for PM10 is around 150 ug/m 3 for 24 hours average concentration and to 50 ug/m 3 for the annual average concentration. The data set used in this paper consists on macroeconomics and financial data, including CO 2 emissions, ecological foot print, real GDP per capita, energy use, urbanization, financial development and openness trade, to investigate the EKC hypothesis for the Qatar economy. All the dataset except the ecological foot print variable are collected from the world Bank's development indicators (WDI). The ecological footprint data is obtained from the National Footprint Accounts (NFAs) of the Global Footprint Network. This variable is employed as second proxy of environment quality measures. This data set used is a quarterly data and covers the period 1975Q1 to 2007Q4 for variables used for ecological footprint equation and covers the periods 1980Q1 to 2010Q4 for the CO 2 emissions equations variables. This paper contributes to the empirical literature of the EKC hypothesis in many ways. First, to our knowledge this paper is the first to consider the case of the Qatar economy as a single country to test the EKC hypothesis as well as the different directions of causality between variables. Second, in addition to the CO 2 emissions largely employed in the empirical literature, in this paper we employ also the ecological footprint as a new proxy of environmental degradation. Third, we use recent development of cointegration approach with structural breaks which is also rarely used for the case of EKC hypothesis. As tests of cointegration with shifts in the cointegration vector, we use the Gregory and Hansen (1996), Hatemi-J (2008) and to investigate the causal relationship between all variables using standard Granger causality tests. Fourth, to our knowledge this paper is the first study that uses Markov Switching Equilibrium Correction Model with shifts in both the intercept and the income per capita coefficient for the long run relationship between environment degradation and its key determinants. The empirical findings of this paper are useful for Qatari policymakers and especially for the ministry of environment of the Qatar government. Moreover, economic implications and economic policy are proposed and discussed. [1] P.O.Box: 2713-Doha-Qatar. Email: lcharfeddine@qu.edu.qa. Office: (+974) 4403-7764(+974) 4403-7764, Fax: (+974) 4403-5081. 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This study aims to re-examine the key drivers of environmental degradation in Nigeria, focusing on the roles of financial development, foreign direct investment (FDI), and economic growth. It employs a dynamic Autoregressive Distributed Lag (ARDL) approach and the non-parametric Diks and Panchenko (2006) Granger causality test to analyse quarterly time series data from the first quarter (Q1) in 1970 to the fourth quarter (Q4) of 2022. The findings revealed a significant positive impact of financial development and FDI inflows on environmental degradation, both in the short and long run. The study validated the Environmental Kuznets Curve (EKC) hypothesis, demonstrating an inverted U-shaped relationship between economic growth and environmental degradation. The nonparametric causality test uncovered a non-linear bidirectional causal relationship between environmental degradation and financial development and a unidirectional causality running from FDI to environmental degradation. The study contributes to the existing literature by providing empirical evidence from Nigeria that supports the EKC hypothesis and by employing dynamic models and non-parametric tests to account for potential nonlinearities and dependencies. It offers insights into the complex interplay between economic factors, financial development, and environmental degradation, highlighting the need for a holistic approach to address environmental degradation while promoting sustainable economic development.

Re-visiting the environmental Kuznets curve hypothesis for Malaysia: Fresh evidence from ARDL bounds testing approach

Purpose: The study’s objectives were twofold. Firstly, to examine the determinants of foreign direct investment in BRICS (Brazil, Russia, India, China, South Africa). Secondly, the study explored whether the complementarity between trade openness and infrastructural development was one of the drivers of foreign direct investment inflows into BRICS during the period under study.
 Design/Methodology/Approach: The study used fixed effects, dynamic ordinary least squares (dynamic OLS) and the fully modified ordinary least squares (FMOLS) with data ranging from 1994 to 2020.
 Findings: Trade openness (FMOLS, dynamic OLS, fixed effects), economic growth (FMOLS) and exchange rates (fixed effects, FMOLS) were found to have had a significant positive effect on foreign direct investment inflow into BRICS. The study also noted that the influence of inflation (fixed effects), financial development (fixed effects, FMOLS) and human capital development (FMOLS, fixed effects) on foreign direct investment was significantly negative.
 Implications/Originality/Value: To attract more foreign direct investment inflows into their countries, BRICS authorities are urged to develop and implement policies geared towards enhancing trade openness, economic growth and strength of their local currencies.

The impact of economic growth and energy use is still controversial regarding sustainability, and researchers have limited consensus in this regard. Electricity is considered more environmentally friendly compared with direct fossil fuel consumption. However, many developed economies still depend on fossil fuel sources for electricity generation. Therefore, this study attempted to verify the relationship between electricity consumption and carbon emissions in developed economies in the Group of Twenty (G20). Economic growth and foreign direct investment are other important variables for analyzing this relationship. For this purpose, a dataset from 1995–2018 was generated. The study used econometric methods including cross-sectional dependence, cointegration, Fully Modified Ordinary Least Square (FMOLS), Dynamic Ordinary Least Square (DOLS) estimators, and the Pair-wise panel Granger causality test to examine the relationship between dependent and independent variables. The findings show a positive relationship between electricity consumption and CO2 emissions. This indicates that electricity production is still dependent on sources that help increase CO2 emissions in G20 countries. Furthermore, the results show that gross domestic product and its square term confirm the Environmental Kuznets Curve (EKC) theory for these economies. These results suggest that policymakers promote green and clean electricity sources for sustainable economic growth.

This study explores the intricate interplay among CO2 emissions, economic development, foreign direct investment (FDI) inflows, trade, and energy consumption in post-communist republics spanning from 1995 to 2017. Utilizing a panel cointegration test, we unveil a profound and enduring relationship among these variables. Long-term elasticities are meticulously examined through Dynamic Ordinary Least Squares (DOLS) and Fully Modified Ordinary Least Squares (FMOLS) regressions, both of which consistently reveal a positive association between GDP per capita, FDI inflows, trade, energy consumption, and CO2 emissions per capita over the long term. Moreover, employing a panel causality test, our analysis identifies a robust unidirectional causality, specifically from CO2 emissions to energy consumption, signifying a pivotal link in the chain of influence (p<0.01). These findings shed light on the nuanced dynamics of CO2 emissions and their intricate connections with economic growth, foreign investments, trade, and energy usage in the post-communist context.

This study mainly contributes to test the Environmental Kuznets Curve (EKC) hypothesis using panel data for the ASEAN (Malaysia, Indonesia, Thailand and Philippines) countries plus China. Empirical focus of the study is to examine the nexus between CO2 emission, energy consumption and economic growth. While using panel data for 1971-2008 and applying panel co-integration techniques, the emergent findings of the study showed a positive relationship between per capita GDP and per capita CO2 emission. Further, we found positive effect of energy consumption on CO2 emission in long run. However, the study findings confirmed EKC inverted U-shape hypothesis for the ASEAN-china region after the inclusion of energy consumption. However, it did not hold once only quadratic relationship of per capita income was regressed with CO2 emission. Our long-run Panel Ordinary Least Squares (POLS), Dynamic Ordinary Least Squares (DOLS) and Fully Modified Ordinary Least Squares (FMOLS) estimates also confirmed U-shaped EKC hypothesis for this sample of ASEAN4 countries plus China. The findings of the study suggest the countries under consideration should focus on increasing per capita income to sustain long term economic growth and to reduce pollutants and hence, CO2 emission in the region.

ABSTRACTIn the global pursuit of sustainable development, understanding the intricate interplay among financial development, economic growth, and environmental considerations is paramount. This study delves into the dynamics within 46 selected Sub‐Saharan countries from 2000 to 2020, investigating the nexus between financial development, economic growth, and CO2 emissions. Employing a rigorous methodological approach, we use carbon emissions (CO2) as the dependent variable, with financial development and economic growth as independent variables. Statistical tools include the Pesaran test for cross‐sectional dependency and Im‐Pesaran‐Shin, and Fisher‐type tests for unit root, ensuring methodological robustness. Various cointegration tests, such as the Kao, Pedroni, and Westerlund, were applied to validate long‐term relationships. To unveil the true dynamics of the long‐run impact of financial development on CO2 emissions, four methodologies were employed: Quantile Methods via Method of Moments (MMQR), Fully Modified OLS (FMOLS), Dynamic OLS (DOLS), and Canonical Correlation Regression (CCR). Our findings suggest that variables like AE, TO, NR, and GDP exert a positive and significant impact on CO2 emissions across all Quantiles. At the same time, foreign direct investment (FDI) exhibits a negative and significant influence on CO2 emissions. In light of these results, policymakers are urged to consider a nuanced approach to environmental policy formulation.