Researchers from Near East University collaboratively engaged in a study examining the intricate relationship between financial stability and CO2 emissions in Iceland. The research, which focuses on Iceland’s unique context, aims to shed light on how financial stability influences environmental outcomes and identifies potential policy pathways.
Analyzing quarterly data spanning 1995 to 2019, the study employs sophisticated nonlinear ARDL and Fourier-based methodologies to uncover asymmetric connections between financial stability, CO2 emissions, and various exogenous factors like income, energy use, and trade openness. The findings reveal compelling evidence of cointegration among CO2 emissions, financial stability, and these additional variables.
Remarkably, the research demonstrates that positive variations in financial stability play a mitigating role in CO2 emissions, while negative variations have a neutral impact. Additionally, it underscores that increased energy use and income levels tend to escalate CO2 emissions, whereas trade openness and positive changes in financial stability act as mitigating factors.
Drawing insights from the study’s outcomes, policymakers in Iceland are urged to concentrate efforts on bolstering financial stability, recognizing its potential to encourage environmental innovation, investment in green technology, and sustainable practices. Strengthening trade liberalization policies to facilitate the flow of environmentally friendly goods and services is highlighted as a critical avenue to extend the positive environmental impacts of trade openness in Iceland.
However, the research acknowledges the limitation of its singular focus on Iceland and recommends future investigations expanding the analysis to encompass more financially stable economies worldwide. It encourages comparative studies involving both stable and unstable economies to better understand the nuances of the relationship between financial stability and environmental impact. Furthermore, leveraging novel econometric approaches and machine learning algorithms with higher-frequency datasets could enrich future research endeavors in this domain.
This study underscores the importance of integrating environmental considerations into economic policies, emphasizing the potential of financial stability as a catalyst for sustainable development while advocating for global efforts towards a greener and economically robust future.
For further details, access the original paper from the publisher’s link:
https://www.sciencedirect.com/science/article/pii/S1342937X23000096
