Testing the long-run effects of economic growth, financial development and energy consumption on CO2 emissions in Turkey: new evidence from RALS cointegration test

Doğanlar, Murat; Mike, Faruk; Kızılkaya, Oktay; Karlılar, Selin

Testing the long-run effects of economic growth, financial development and energy consumption on CO2 emissions in Turkey: new evidence from RALS cointegration test

2021

Doğanlar, Murat | Mike, Faruk | Kızılkaya, Oktay | Karlılar, Selin

This study analyses the long-run effects of economic growth, energy consumption and financial development on carbon dioxide (CO₂) emissions in Turkey using annual time series data for the period 1965–2018. This research investigates the relationship between the variables using a RALS-EG (residual augmented least squares–Engle and Granger) cointegration test procedure developed by Lee et al. Stud Nonlinear Dyn Econ 19:397–413, (2015). In addition, this study uses a bootstrap causality analysis developed by Hacker and Hatemi-J J Econ Stud 39:144–160, (2012) to specify the causal relationship between the series. RALS cointegration test results show a long-run relationship between CO₂ emissions and economic growth, energy consumption and financial development. According to a dynamic ordinary least squares estimation, economic growth has a negative and statistically significant effect on CO₂ emissions, whereas energy consumption and financial development have positive and statistically significant effects on CO₂ emissions in the long run. In particular, energy consumption is the most effective parameter of environmental pollution in Turkey. However, the causality test results indicate a unidirectional causal relationship from financial development to CO₂ emissions, economic growth and energy consumption. Increasing the investment in renewable energy sources will be an effective policy tool to improve the environmental quality in Turkey.

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