The research conducted by scholars from Near East University examines the intricate relationship between financial development and environmental sustainability, focusing on the challenge of escalating CO2 emissions. The study, spanning the years 1990 to 2019, employs innovative quantile-on-quantile and nonparametric causality-in-quantile methodologies to investigate the impacts and causal links between financial market and institution development and CO2 emissions levels in five major polluting countries.
The findings of the study robustly establish the significant influence of financial institutions (FI) and financial market (FM) development on CO2 emissions. The research identifies the presence of shocks and nonparametric causality, revealing a nuanced and asymmetric impact across the sample countries. Notably, positive and negative shocks are observed in India, while only negative shocks are observed in China, the USA, Russia, and Japan.
The study reinforces prior research indicating an inverse relationship between FI development and CO2 emissions, emphasizing the positive role of FI in reducing emissions by supporting environmentally friendly projects. The negative shocks suggest that FI plays a pivotal role in connecting low-carbon initiatives with financial support, enhancing market conditions, and reducing risk.
Examining the impact of FM development on CO2 emissions, the study uncovers diverse effects across countries. Both positive and negative shocks are transmitted to CO2 emissions in the USA, Russia, and Japan, signaling higher volatility compared to China and India, where only negative shocks are observed. Negative shocks align with previous research, highlighting that FM growth in advanced countries leads to reduced emissions due to stringent regulations fostering efficient production processes and sustainable energy adoption. Conversely, positive shocks indicate that FM development may contribute to environmental degradation through increased CO2 emissions, primarily driven by expansive business activities.
The implications of this research underscore the need for prioritizing environmentally conscious financial products and enhancing the financial system’s capacity to mitigate positive shocks contributing to increased CO2 emissions. The study calls for collective efforts to embrace sustainable financial practices, considering the environmental impact of financial activities.
More Information:
https://link.springer.com/article/10.1007/s11356-023-28971-2
