Impact of financial development and energy consumption on environmental degradation in 184 countries using a dynamic pan
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RESEARCH ARTICLE
Impact of financial development and energy consumption on environmental degradation in 184 countries using a dynamic panel model Sher Khan 1 & Muhammad Kamran Khan 2
&
Bashir Muhammad 1
Received: 4 September 2020 / Accepted: 12 October 2020 # Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract This study aimed to examine the impact of financial development and energy consumption on CO2 emissions by employing balanced panel data from the period 1990–2017 for 184 countries worldwide. This study applied seemingly unrelated regression (SUR), two-step difference, and the system GMM model for data analysis. The examined results of SUR, two-step difference, and system GMM show that energy consumption positively impacts the CO2 emissions worldwide; on the other hand, the examined results of two-step difference and the system GMM model indicate that financial development helps to reduce the CO2 emissions and the results of SUR indicate that financial development positively impacts the CO2 emissions. The examined results regarding economic growth indicate a positive effect on the CO2 emission and the square of economic growth verifies the validly of the environmental Kuznets curve in 184 countries. This study has significant implications for policy makers with regard to environment improvement, clean energy conservation, and an efficient financial system. Further directions are suggested based on the examined results. Keywords Financial development . Energy consumption . CO2 emissions . Environmental Kuznets curve . Two-step GMM and two-step system GMM
Introduction Financial development plays a major role in energy use and economic development in developing and developed countries. A large numbers of countries1 in the world have 1
For example, most of the developed and developing countries such as the United States, Canada, Japan, Germany, Australia, France, UK, Italy, China, Russia, India, South Africa and some countries in the Middle East/North Africa, Latin America, and central Asia regions. Several countries are also facing an energy crisis or shortage of energy. Most of those countries are from Africa and Asia regions, some are from other regions (see World Bank 2018 access to electricity percentage of population)
Responsible Editor: Nicholas Apergis * Muhammad Kamran Khan [email protected] 1
School of Economics, Henan University, Jinming Road, Kaifeng Postal Code 475004, Henan, China
2
School of Economics and Management, Northeast Normal University, Changchun, Jilin, China
abundant energy resources and have more energy production than their required level, while others countries are facing a shortage of energy, and most of these countries depended on primary energy sources. Similarly, some countries in the world have strong financial institutions; however, their effects on the environment are detrimental. Financial development is one of the most important drivers of energy consumption and carbon emissions, and they are believed to have profound impacts on one another.
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