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Do Economic, Financial and Institutional Developments Matter for Environmental Degradation? Evidence from Transitional Economies

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  • Artur Tamazian
  • B. Bhaskara Rao

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 (2004) 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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Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2009_02.

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Length: 25 pages
Date of creation: 02 Feb 2009
Date of revision:
Handle: RePEc:eei:rpaper:eeri_rp_2009_02

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Keywords: Environmental Degradation; Economic Development; Financial Development; Institutional Quality; EKC.;

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Cited by:
  1. Hosseini, Hossein Mirshojaeian & Kaneko, Shinji, 2013. "Can environmental quality spread through institutions?," Energy Policy, Elsevier, vol. 56(C), pages 312-321.
  2. Muhammad, Shahbaz, 2012. "Multivariate granger causality between CO2 Emissions, energy intensity, financial development and economic growth: evidence from Portugal," MPRA Paper 37774, University Library of Munich, Germany, revised 31 Mar 2012.
  3. Muhammad, Shahbaz & Faridul, Islam & Muhammad Sabihuddin, Butt, 2011. "Financial Development, Energy Consumption and CO2 Emissions: Evidence from ARDL Approach for Pakistan," MPRA Paper 30138, University Library of Munich, Germany, revised 07 Apr 2011.
  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. 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).
  6. 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.
  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. Shahbaz, Muhammad & Mutascu, Mihai & Azim, Parvez, 2013. "Environmental Kuznets curve in Romania and the role of energy consumption," Renewable and Sustainable Energy Reviews, Elsevier, vol. 18(C), pages 165-173.
  9. Shahbaz, Muhammad & Solarin, Sakiru Adebola & Mahmood, Haider, 2012. "Does Financial Development Reduce CO2 Emissions in Malaysian Economy? A Time Series Analysis," MPRA Paper 40603, University Library of Munich, Germany, revised 10 Aug 2012.
  10. 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.
  11. Shahbaz, Muhammad, 2010. "Does financial instability increase environmental pollution in Pakistan?," MPRA Paper 31360, University Library of Munich, Germany, revised 28 Mar 2011.
  12. 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.
  13. 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).
  14. Muhammad, Shahbaz & Qazi Muhammad, Adnan Hye & Aviral Kumar, Tiwari, 2012. "Economic Growth, Energy Consumption, Financial Development, International Trade and CO2 Emissions in Indonesia," MPRA Paper 43294, University Library of Munich, Germany, revised 15 Dec 2012.
  15. 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.
  16. Shahbaz, Muhammad, 2013. "Does financial instability increase environmental degradation? Fresh evidence from Pakistan," Economic Modelling, Elsevier, vol. 33(C), pages 537-544.
  17. Sharif Hossain, Md., 2011. "Panel estimation for CO2 emissions, energy consumption, economic growth, trade openness and urbanization of newly industrialized countries," Energy Policy, Elsevier, vol. 39(11), pages 6991-6999.
  18. 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.

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