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An Empirical Assessment of the Financial Development – Environmental Quality Nexus in the European Union

Author

Listed:
  • Alexandra Horobet

    (Bucharest University of Economic Studies, Bucharest, Romania)

  • Irina Mnohoghitnei

    (Bucharest University of Economic Studies, Bucharest, Romania)

  • Dan Gabriel Dumitrescu

    (Bucharest University of Economic Studies, Bucharest, Romania)

  • Stefania Cristina Curea

    (Bucharest University of Economic Studies, Bucharest, Romania)

  • Lucian Belascu

    (“Lucian Blaga” University of Sibiu, Romania)

Abstract

Our study examines the dynamic relationship between financial development and environmental degradation in the European Union (EU) in a panel VAR (Vector Autoregressive) methodological framework over the period 1996-2018. Panel causality tests and impulse response functions show that financial development contributes to higher carbon emissions, although this effect is stronger in the short run and weaker in the long run. At the same time, financial institutions development is the major contributor to fostering increased environmental degradation instead of financial markets, which points towards an engagement of financial institutions towards offering financial products that led to environmental degradation and/or lagging financial markets in terms of promoting environmentally-related securities and ESG principles. By providing new insights into the relationship between financial development and carbon emissions, we hope to assist EU policymakers and businesses in reconsidering the role of financial development as an effective means of decreasing environmental degradation in the region.

Suggested Citation

  • Alexandra Horobet & Irina Mnohoghitnei & Dan Gabriel Dumitrescu & Stefania Cristina Curea & Lucian Belascu, 2022. "An Empirical Assessment of the Financial Development – Environmental Quality Nexus in the European Union," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 24(61), pages 613-613, August.
    • Handle: RePEc:aes:amfeco:v:24:y:2022:i:61:p:613
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    References listed on IDEAS

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    2. POPESCU Consuela-Elena & PENTESCU Alma & SHIVAROV Aleksandar, 2023. "Sustainability, ESG Ratings and Corporate Performance in the Manufacturing Sector: A Research Review," European Journal of Interdisciplinary Studies, Bucharest Economic Academy, issue 02, June.

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    More about this item

    Keywords

    Financial development; carbon emissions; financial markets; financial institutions; EU; panel VAR; impulse response.;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth

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