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Time-varying impact of financial development on carbon emissions in G-7 countries: Evidence from the long history

Muhammad Shahbaz, Mehmet Destek, Kangyin Dong and Zhilun Jiao

Technological Forecasting and Social Change, 2021, vol. 171, issue C

Abstract: Financial development has been widely proved to be a key driver of economic growth; however, its environmental impact is still inconclusive, especially for G-7 countries (i.e. Canada, France, Germany, Italy, Japan, the United Kingdom (UK), and the United State (US)). This paper, therefore, investigates the time-varying impact of financial development on carbon dioxide (CO2) emissions for G-7 countries over a long historical period. The study analyzes historical data from 1870 to 2014 for each country using bootstrap time-varying co-integration (TVC) and bootstrap rolling window estimation approaches. In addition, the polynomial trends of the estimated parameters are obtained to observe the relationship between financial development and carbon emissions. The empirical findings reveal that the impact of financial development on CO2 emissions over a long history is M-shaped in Canada, Japan, and the US; inverted N-shaped in France, Italy, and the UK; and inverted M-shaped (W-shaped) in Germany. This empirical evidence opens new directions for policy makers to design comprehensive economic policy for using the financial sector as an economic tool to keep environmental quality at sustainable levels.

Keywords: Financial Development; CO2 Emissions; Non-linear Analysis; Time-varying Co-integration (TVC); G-7 (search for similar items in EconPapers)
JEL-codes: C32 G10 Q54 R11 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

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Working Paper: Time-Varying Impact of Financial Development on Carbon Emissions in G-7 Countries: Evidence from the Long History (2021) Downloads
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DOI: 10.1016/j.techfore.2021.120966

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