Does financial development improve environmental quality in Turkey? An application of endogenous structural breaks based cointegration approach

Abstract

Purpose The purpose of this paper is to investigate the long-run effect of financial sector development, energy use and economic growth on carbon emissions for Turkey, in presence of possible regime shifts over a period of 1960-2013. Design/methodology/approach Along with the conventional unit root tests, Zivot-Andrews unit root test with structural break has been employed to check the stationarity of variables. The cointegrating relationship between variables is investigated by using the autoregressive distributed lag bounds test and Hatemi-J threshold cointegration test. Findings The results confirm a cointegrating relationship between the variables. The long-run relationship between the variables has gone through two endogenous structural breaks in 1976 and 1986. Development of financial sector improves environmental quality whereas energy use and economic growth degrade it. The results challenge the validity of environmental Kuznets curve hypothesis in Turkish economy. Research limitations/implications The study uses domestic credit to private sector as a proxy for development of financial sector. The model can be improved by constructing an index of financial development instead of using a single determinant as a proxy for financial development. Practical implications The study may pave the way for policy makers to capture important environmental pollutants in better way and develop effective and efficient energy and economic policies. This may make significant contribution to curbing CO2 emissions while sustaining economic growth. Originality/value This is the only study to examine long-run impact of financial sector development on carbon emissions, using the threshold cointegration approach. Hence, the study is a gentle request to reduce the possible omitted variable econometric estimation bias and fill the gap in the existing literature.

Does Energy-Growth and Environment Quality Matter for Agriculture Sector in Pakistan or not? An Application of Cointegration Approach

“…[24] revealed that financial development significantly enhances the environmental degradation in the One Belt and One Road region. [18,43] reported that financial development improves environmental quality in Turkey. Similarly, FDI coefficient results indicate a positive significant and dominant effect on CO 2 in the long run in Pakistan.…”

“…They accomplished that energy use and economic growth increase CO 2 emissions, whereas trade openness and financial development compact it. As studied by the [18] examined the interplay between financial development, energy use and GDP on CO 2 emissions. Using time-series data for Turkey for the period 1976-1986, results of the analysis revealed that financial development develops environmental quality while energy use and economic growth reduce it.…”

Relationship Among Economic Growth, Energy Consumption, CO2 Emission, and Urbanization: Evidence From MINT Countries

“…Meanwhile, in reference to Ozturk's (2010) and Shahbaz and Sinha's (2019) arguments on the inconclusive results on the Environmental Kuznets Curve (EKC) hypothesis, some researchers examined the nexus among CO 2 emission, economic growth, and energy consumption (Al Mamun et al 2014;Asif et al, 2015;Dar and Asif, 2018;Nguyen & Wongsurawat, 2017;Phuong & Tuyen, 2018), and virtually all of them established a significant positive influence of economic growth and energy consumption on CO 2 emission. Similarly, some recent studies such as Phong et al (2018) found a positive influence of GDP and energy consumption on CO 2 in the long run, whereas urbanization was found to negatively influence CO 2 in the short run.…”

Financial Development and the Quality of the Environment in Nigeria: An Application of Non-Linear ARLD Approach

“…Henceforth, researchers have gained attention in the recent years in investigating the relationship between financial sector development and environmental degradation. Several studies indicate clear evidence of the development of financial sector causing increased emissions of carbon dioxide (Ali et al, 2018;Cetin, Ecevit, & Yucel, 2018a;Charfeddine & Khediri, 2015;Dar & Asif, 2017;Javid & Sharif, 2016;Paramati, Alam, & Apergis, 2018;Xing, Jiang, & Ma, 2017). The studies found explanations for a positive effect on CO2 emissions from the financial sector.…”

“…The consequences of climate change, global warming, and degradation of the environment are already visible in the escalation of extreme weather events, increased storm intensity, changing the patterns of rainfall, and increasing the sea level. Such alterations have an adequate effect on the proper functioning of ecosystems, forest sustainability, and human well-being (Boutabba, 2014;Dar & Asif, 2017).…”