The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy

This paper examines the long-run equilibrium and the existence and direction of a causal relationship between carbon emissions, financial development, economic growth, energy consumption and trade openness for India in a multivariate framework. The results suggest that there is strong evidence on the long run and causal relationships between per capita carbon emissions, per capita real income, the square of per capita real income, per capita energy use, financial development and trade openness. The results also confirm the existence of EKC hypothesis in the Indian economy. Further, causality tests also indicate that there was a unidirectional Granger causality running from per capita real income, per capita energy consumption, and financial development to per capita carbon emissions, all without feedback. The evidence seems to suggest that financial system should take into account the environment aspect in their current operations. The findings of this study may be of great importance for policy and decision-makers in order to develop energy policies for India that contribute to curb carbon emissions while preserving economic growth.