Financial Development and Environmental Degradation in Indonesia: Evidence From Auto Regressive Distributed Lag Bound Testing Method

Abstract

Financial sector can carry a negative impact on power consumption by advancing energy efficient technologies through technological advancements in the power industry to decline toxic carbon emanations. Therefore, the emphasis of the current investigation is on identifying the empirical connection between financial advancement and carbon emission in the developing country of Indonesia. In addition, given the relevant significance, the study also aims to examine the contribution of energy consumption and economic growth of Indonesia in influencing environmental degradation in the country. The results of Auto Regressive Distributed Lag bound testing confirm a valid long-run relationship between financial advancement, energy consumption, economic growth, and carbon dioxide emission in Indonesia. The result further suggested that financial advancement, energy consumption, and economic growth have a positive and significant impact on carbon emission in both the long and short run period. The study recommends that the government needs to divert its energy and also financial institution toward the green investment and environmental friend energy utilization, which ultimately help to reduce the carbon emission level in Indonesia.

A Time-Varying Analysis between Financial Development and Carbon Emissions: Evidence from the MINT countries

“…This positive-negative relationship fluctuates constantly across the observed periods. This finding resonates with the study of Fitriyah 77 on the impact of financial development on environmental degradation, which used the ARDL method in the case of Indonesia. The study emphasized the negative impact of financial development on environmental quality.…”

Does Financial Development, Economic Growth and Industrial Growth Intensify Energy Consumption in Pakistan?

“…While some studies indicate a positive link among FD and Energy use (Gaies et al, 2019;Mukhtarov et al, 2018;Sadorsky, 2010), and argue that FD increases EC by facilitating business expansion and boosting consumer spendings. Others report negative or insignificant impacts (Ali, Yusop, & Hook, 2015;Farhani & Solarin, 2017;G ómez & Rodríguez, 2019), and contend that FD fosters innovation in energy-saving techniques and efficiency. Various indicators are used to measure FD, such as the percentage of internal private sector credit in GDP, bank deposit money, assets to GDP, and FDI.…”

“…Conversely, in a different study, (Ali et al, 2015) utilized ARDL bound testing to investigate the influence of FD, and economic growth on EC within Nigeria. Their investigation spanned from the first quarter of 1972 to the last quarter of 2011.…”