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Nonlinear Relationship between Financial Development and CO 2 Emissions—Based on a PSTR Model

Author

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  • Keyi Duan

    (School of Management, Universiti Sains Malaysia, USM, Penang 11800, Malaysia)

  • Mingyao Cao

    (School of Management, Universiti Sains Malaysia, USM, Penang 11800, Malaysia
    Lee Kuan Yew School of Public Policy, National University of Singapore, Singapore 259772, Singapore)

  • Nurhafiza Abdul Kader Malim

    (School of Management, Universiti Sains Malaysia, USM, Penang 11800, Malaysia)

  • Yan Song

    (Department of City and Regional Planning, University of North Carolina, Chapel Hill, NC 27599-3140, USA)

Abstract

The contradiction between financial development and environmental pollution has become increasingly prominent with economic development. The discovery of the link between financial development and carbon dioxide emissions will aid in the development of solutions to this problem. This paper uses a panel smooth transition regression (PSTR) model to examine the impact of financial development on carbon dioxide emissions using panel data from 28 Chinese provinces from 2005 to 2021. The PSTR model can solve the problem of minimizing potential outliers ignored in the previous literature, while taking into account the endogeneity and heterogeneity of the model and obtaining more reliable results. According to the findings, financial development has a nonlinear effect on carbon dioxide emissions. Furthermore, the positive effect of financial development on carbon dioxide emissions occurs via the scale and structural effects, while the negative effect occurs via the technological effect, which takes up more space. Moreover, financial added value and the financial scale demonstrate a smooth transition, while financial efficiency and foreign direct investment demonstrate a positive influence.

Suggested Citation

  • Keyi Duan & Mingyao Cao & Nurhafiza Abdul Kader Malim & Yan Song, 2022. "Nonlinear Relationship between Financial Development and CO 2 Emissions—Based on a PSTR Model," IJERPH, MDPI, vol. 20(1), pages 1-15, December.
    • Handle: RePEc:gam:jijerp:v:20:y:2022:i:1:p:661-:d:1020055
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