The financial development-environmental degradation nexus in the United Arab Emirates: the importance of growth, globalization and structural breaks
2020
Shahbaz, Muhammad | Haouas, Ilham | Sohag, Kazi | Ozturk, Ilhan
This article revisits the nexus between financial development and environmental degradation by incorporating economic growth, electricity consumption and economic globalization in the CO₂ emissions function for the period 1975QI–2014QIV in the United Arab Emirates. We apply structural break and cointegration tests to examine unit root and cointegration between the variables. Further, the article also uses the Toda-Yamamoto causality test to investigate the causal relationship between the variables and tests the linkages of the robustness of causality by following the innovative accounting approach. Our empirical analysis shows cointegration between the series. Financial development increases CO₂ emissions. Economic growth is positively linked with environmental degradation. Electricity consumption improves environmental quality. Economic globalization affects CO₂ emissions negatively. The relationship between financial development and CO₂ emissions is U-shaped and inverted N-shaped. Further, financial development leads to environmental degradation, and environmental degradation in turn leads to financial development in the Granger sense.
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