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Do economic, financial and institutional developments matter for environmental degradation? Evidence from transitional economies

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  • Tamazian, Artur
  • Bhaskara Rao, B.

Abstract

Several studies have examined the relationship between environmental degradation and economic growth. However, most of them did not take into account financial developments and institutional quality. Moreover, Stern [Stern, D., 2004. The rise and fall of the environmental Kuznets curve. World Development 32(8): 1419-1439.] noted that there are important econometric weaknesses in the earlier studies, such as endogeneity, heteroscedasticity, omitted variables, etc. The purpose of this paper is to fill this gap in the literature by investigating the linkage between not only economic development and environmental quality but also financial development and institutional quality. We employ the standard reduced-form modelling approach to control for country-specific unobserved heterogeneity and GMM estimation to control for endogeneity. Our study considers 24 transition economies and panel data for 1993-2004. Our results support the EKC hypothesis while confirming the importance of both institutional quality and financial development for environmental performance. We also found that financial liberalization may be harmful for environmental quality if it is not accomplished in a strong institutional framework.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 1 (January)
Pages: 137-145

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Handle: RePEc:eee:eneeco:v:32:y:2010:i:1:p:137-145

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Environmental degradation Economic development Financial development Institutional quality EKC;

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Citations

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Cited by:
  1. Shahbaz, Muhammad, 2013. "Does financial instability increase environmental degradation? Fresh evidence from Pakistan," Economic Modelling, Elsevier, vol. 33(C), pages 537-544.
  2. Hosseini, Hossein Mirshojaeian & Kaneko, Shinji, 2013. "Can environmental quality spread through institutions?," Energy Policy, Elsevier, vol. 56(C), pages 312-321.
  3. Shahbaz, Muhammad & Kumar Tiwari, Aviral & Nasir, Muhammad, 2013. "The effects of financial development, economic growth, coal consumption and trade openness on CO2 emissions in South Africa," Energy Policy, Elsevier, vol. 61(C), pages 1452-1459.
  4. Mohamed Amine Boutabba, 2013. "The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy," Documents de recherche 13-05, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  5. Zhang, Yue-Jun, 2011. "The impact of financial development on carbon emissions: An empirical analysis in China," Energy Policy, Elsevier, vol. 39(4), pages 2197-2203, April.
  6. Shahbaz, Muhammad & Solarin, Sakiru Adebola & Mahmood, Haider & Arouri, Mohamed, 2013. "Does financial development reduce CO2 emissions in Malaysian economy? A time series analysis," Economic Modelling, Elsevier, vol. 35(C), pages 145-152.
  7. Patrick Richard, 2010. "Financial market instability and CO2 emissions," Cahiers de recherche 10-20, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  8. Muhammad, Shahbaz & Mihai, Mutascu & Parvez, Azim, 2011. "Environmental Kuznets Curve in Romania and the Role of Energy Consumption," MPRA Paper 32254, University Library of Munich, Germany, revised 15 Jul 2011.
  9. Mohammad Reza Farzanegan & Gunther Markwardt, 2012. "Pollution, Economic Development and Democracy: Evidence from the MENA countries," MAGKS Papers on Economics 201227, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  10. Shahbaz, Muhammad, 2011. "Does financial instability increase environmental pollution in Pakistan?," MPRA Paper 31530, University Library of Munich, Germany, revised 27 Mar 2011.
  11. Sadorsky, Perry, 2011. "Financial development and energy consumption in Central and Eastern European frontier economies," Energy Policy, Elsevier, vol. 39(2), pages 999-1006, February.
  12. Muhammad, Shahbaz & Tiwari, Aviral & Muhammad, Nasir, 2011. "The effects of financial development, economic growth, coal consumption and trade openness on environment performance in South Africa," MPRA Paper 32723, University Library of Munich, Germany, revised 10 Aug 2011.
  13. Jalil, Abdul & Feridun, Mete, 2011. "The impact of growth, energy and financial development on the environment in China: A cointegration analysis," Energy Economics, Elsevier, vol. 33(2), pages 284-291, March.
  14. Phetkeo Poumanyvong & Shinji Kaneko & Shobhakar Dhakal, 2012. "Impacts of urbanization on national residential energy use and CO2 emissions: Evidence from low-, middle- and high-income countries," IDEC DP2 Series 2-5, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).

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