Sustainability in ASEAN Countries: The Role of Financial Development in Climate Change

Higher financial development and economic growth leads to higher production and consumption of a nation. This is because when a country is developed, the demand for infrastructure will increase which could significantly affect the country’s environment. The main aim of this paper is to explore the link between energy efficiency, sustainable economic growth, population and financial development in five ASEAN countries (Malaysia, Thailand, Indonesia, Philippines and Vietnam). Panel data analysis was employed and the results show that financial development, economic growth, population and renewable energy are important factors in influencing climate change. Based on the results, increasing financial development, higher energy use, high population and increasing economic growth will generate more CO2 emissions and contribute to climate change. Thus, there are several policies suggested to balance the relationship between financial development and carbon emission levels, which should be considered and implemented by governments and policy makers in order to improve the environmental quality in ASEAN countries. In conclusion, in the five selected ASEAN countries, financial growth plays an important role in highlighting climate change issues. Many past studies have focused on the impacts of renewable energy consumption, population, economic growth and foreign direct investment on climate change. This study narrows the gap that exists in the literature by focusing on financial development, which is able to foster vigorous economic growth, especially in ASEAN countries. Overall, the results from the fixed effects estimates show that financial development is a significant factor and has a positive contribution towards climate change.