Abstract
Of recent times many countries are suffering from environmental problems such as global warming and emission of greenhouse gases. Emissions of carbon dioxide as been recognized as the major contributor to global warming and climate change. This paper examines the long run relationship among the variables environmental quality, financial development and economic growth in Kenya using time series for the period 1970-2019. Autoregressive distributed lag bounds test is used to investigate long run relationship and Granger causality method is used to test for causality among the variables. Empirical results indicate that there is long-run relationship among the variables. Long run results suggest that increases in financial development, lagged CO 2 , energy consumption, population growth, and trade openness significantly worsens environmental quality in Kenya. Natural resources significantly improve environmental quality in Kenya. According to the results the relationship between CO 2 and financial development in Kenya is non-linear suggesting presence of EKC between CO 2 and financial development. The empirical results confirm that the Environmental Kuznets curve does not exist between CO 2 and economic growth in Kenya in the long run. Short-run results also show that financial development, lagged CO 2 , FDI, population growth, and trade openness increase CO 2 emissions while natural resources reduce it. Causality results show unidirectional causality running from financial development to environmental quality and from CO 2 to GDP. According to the findings, there is evidence of neutrality hypothesis between financial development in Kenya and economic growth. Existence of long run relationship suggests that the government of Kenya needs to implement appropriate environmental policies that reduce pollution during economic growth. The government should set policies and guidelines to the financial sector so that the sector offers credit to firms that reduce air pollution. Keywords : Financial development, economic growth, CO 2 , Autoregressive distributed lag model, Kenya JEL Classification: E44, C32, Q43, Q56 DOI: 10.7176/JESD/11-12-03 Publication date: June 30th 2020
Highlights
Global warming and climate change are the major environmental problems that have affected countries over several decades
The results indicated that financial development reduces CO2 emissions in Malaysia and that energy consumption and economic growth worsen environmental degradation
This is done to confirm that all variables were I(0) and I(1) only since ARDL is applicable for the cases of variables which are I(0) and I(1) only and not I(2).The unit results are shown in Table II in the appendix
Summary
Global warming and climate change are the major environmental problems that have affected countries over several decades. Emission of green house gases especially carbon dioxide has been recognized as the major contributor to global warming and climate change. This is a major challenge facing economies (Zaman et al ,2016). Global warming has led to increases in global temperatures which have risen from 1.1oC to 6.5oC due environmental degradation (IPCC, 2014).Other effects are that countries have experiences rising sea levels, negative effects on farming and health of people leading to diseases such as allergies, asthma, infectious diseases and air pollution. For this to be effective the role of the factors that determine CO2 emissions need to be known
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