The Relationship Between Islamic Financial Development and CO2: Panel Causality Approach

Dilek Çil (), Sinem Koçak () and Çiğdem Karış ()
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Dilek Çil: Trabzon University
Sinem Koçak: Karadeniz Technical University
Çiğdem Karış: Vakfıkebir Vocational School, Trabzon University

A chapter in Emerging Dynamics in Business and Economics, 2025, pp 85-96 from Springer

Abstract: Abstract Recent priorities include studying CO2 levels, a key factor in environmental degradation. Many studies in the literature investigate the relationship between financial development and CO2. However, the number of studies investigating the relationship between Islamic financial development and CO2 is limited. The aim of the study is to examine the causal relationship between Islamic financial development and CO2 emissions. The study’s primary motivation is to contribute to the developing literature in this field, as only a few studies have addressed the relationship between Islamic financial development and CO2 emissions. The study concentrates on the development of Islamic finance in Kuwait, Malaysia, Oman, Pakistan, Saudi Arabia, Sudan, the United Arab Emirates, and Nigeria. We investigate the relationship between Islamic financial development and CO2 emissions for the period 2014: Q1-2019: Q4 using the Dumitrescu and Hurlin panel causality test. The ratio of Sukuk assets to capital is a measure of Islamic financial development. CO2 emissions, measured in metric tons per capita, represent CO2 emissions. The results of the Dumitrescu and Hurlin panel causality test reveal that there is a unidirectional causal relationship between CO2 emissions and Islamic financial development. This finding implies that initiatives focused on improving environmental quality are fundamental for Islamic financial development. Furthermore, this finding provides insight and is crucial for policymakers to consider since it highlights the significance of environmental performance in Islamic financial development.

Keywords: Islamic Financial Development; Carbon dioxide emissions; Panel Causality Test (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-031-91686-1_5

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DOI: 10.1007/978-3-031-91686-1_5

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