The impact of globalization and financial development on environmental quality: evidence from selected countries in the Organization for Economic Co-operation and Development (OECD)

This study intends to examine the validity of the Environmental Kuznets Curve (EKC) in the United States of America (USA), considering the vital role of macroeconomic variables, such as economic growth, institutional quality, globalization, energy consumption, financial development, urbanization, and remittance from 1985 to 2020. The impact of positive/negative shock in a regressor on CO2 emissions keeps other regressors unchanged and has been investigated using the novel dynamic stimulated autoregressive distributed lag (ARDL) model. The empirical findings revealed the positive impact of economic growth and negative impact of the square economic growth on environmental degradation in the short- and long term. It indicates the validity of the EKC hypothesis in the case of the USA. Moreover, financial development, energy consumption, globalization, remittances inflow, and urbanization reduce the environmental quality. On the contrary, institutional quality improves the environmental quality by reducing CO2 emissions. The appropriate recommendations to design the inclusive economic-environment national energy policy were proposed.

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The Impacts of Financial Development on Green and Non-Green Energy Consumption: Empirical Evidence From OPEC Countries

10.21203/rs.3.rs-49973/v1 ◽

2020 ◽

Author(s):

Faris Alshubiri ◽

Mohamed Elheddad ◽

Syed Jamil ◽

Nassima Djellouli

Keyword(s):

Energy Consumption ◽

Financial Development ◽

Environmental Quality ◽

Green Energy ◽

Gdp Per Capita ◽

Green Growth ◽

The World ◽

Domestic Credit ◽

Per Capita ◽

The Impact

Abstract This paper aims to examine the impact of financial development on green and non-green energy consumption in the Organization of the Petroleum Exporting Countries (OPEC) over the period of 1990–2015.The data was collected from the Green Growth Knowledge Platform Database and the World Development Indicators (WDI) of the World Bank for 14 OPEC countries over the period of 1990–2015.We used two different proxies for financial development: (1) domestic financial development, measured by domestic credit in the private sector as a percentage of gross domestic product(GDP), and (2)foreign financial development, measured by the foreign direct investment (FDI) stock as a share of GDP. The main model developed three hypotheses; the first two were sub-hypotheses that characterized green energy through proxies: access to improved sanitation and access to electricity. The third hypothesis was anon-green (brown) energy proxy using CO2 emissions per capita. All three hypotheses used five control variables: by GDP per capita, urbanisation/total population ratio, oil rent/GDP ratio, investment/GDP per capita ratio and trade openness. In order to evaluate these hypotheses, we used the instrumental-variable (IV) approach with a fixed effect option to control for both endogeneity and heterogeneity, and we used the lags of the independent variables as instruments for financial development, as lagged variables are arguably exogenous. The impacts of financial development on environmental quality varied between foreign direct investments (foreign financial development) and the domestic credit ratio (domestic financial development). Our main results suggest that FDI degrades environmental quality in OPEC economies, and FDI represents a source of pollution by increasing CO2 emissions per capita (non-renewable) by about 0.0224% and decreasing non-renewable energy consumption variables. In other words, FDI’s non-renewable and renewable relationship supports the non-green growth hypothesis.JEL Classification B22. B26. D53. E21. F63. K32

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