Globalization, financial development, and environmental sustainability: evidence from heterogenous income groups of Asia

Zafar, Ayaz; Majeed, Muhammad Tariq; Naushīn, Miṣbāḥ; Iqbāl, Jāvīd

Globalization, financial development, and environmental sustainability: evidence from heterogenous income groups of Asia

2021

Zafar, Ayaz | Majeed, Muhammad Tariq | Naushīn, Miṣbāḥ | Iqbāl, Jāvīd

This study examines the effects of energy use, financial development, and globalization on carbon dioxide emissions for Asian countries comprising the panel data over the period 1990–2017. To account for cross-sectional dependence, Pesaran cross-sectional dependence test is used. The second-generation tests are used to determine the stationarity level of the variables. Furthermore, the Westerlund panel cointegration test confirms cointegration among the variables. For long-run association, fully modified ordinary least squares approach is used. The study also used Dumitrescu and Hurlin’s (Econ Model 29:1450-1460, 2012) panel causality test to explore the causal relationship among the variables. The results suggest that financial development contributes to carbon emissions, whereas globalization helps to mitigate emissions. As financial development deteriorates environmental quality, therefore, the government should monitor the disbursement of loans for research and development, green financing, and efficient products that reduce resource consumption and improves environmental quality. Financial development should not compromise environmental quality and endanger sustainability. Such findings show that both renewable energy industries and financial development in the Asian economies are not meeting the maturity level in terms of leading to changes in environmental quality. Furthermore, Asian countries should promote globalization to support the inflow of green technologies to enhance environmental quality.

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