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Income Inequality and CO 2 Emissions in Developing Countries: The Moderating Role of Financial Instability

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  • Bo Yang

    () (School of Economics, Zhongnan University of Economics and Law, Wuhan 430073, China)

  • Minhaj Ali

    () (School of Economics, Zhongnan University of Economics and Law, Wuhan 430073, China)

  • Shujahat Haider Hashmi

    () (School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China)

  • Mohsin Shabir

    () (School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China)

Abstract

This paper studies the effects of income inequality and financial instability on CO 2 emissions in the presence of fossil fuel energy, economic development, industrialization, and trade openness. Moreover, the present study is the first to examine the moderating role of financial instability between income inequality and CO 2 emissions. We utilized panel data of forty-seven developing countries for the period 1980–2016 by utilizing the stochastic impacts by regression on population, affluence, and technology (STIRPAT) model. The empirical outcomes in all models indicate that income inequality and industrialization significantly reduce environmental degradation, while fossil fuel, trade openness, and economic growth decrease the quality of the environment. However, financial instability (without interaction term) shows no significant link to environmental quality, whereas (with interaction term) it shows a significant negative effect on CO 2 emissions. In addition, the result of the interaction variable reveals that an increase in inequality, ceteris paribus, in combination with the rise in financial instability, is expected to increase pollution. Furthermore, there exists a bidirectional causal association among income inequality, financial instability, fossil fuel, trade openness, industrialization, economic growth, and the interaction variable with CO 2 emissions.

Suggested Citation

  • Bo Yang & Minhaj Ali & Shujahat Haider Hashmi & Mohsin Shabir, 2020. "Income Inequality and CO 2 Emissions in Developing Countries: The Moderating Role of Financial Instability," Sustainability, MDPI, Open Access Journal, vol. 12(17), pages 1-24, August.
  • Handle: RePEc:gam:jsusta:v:12:y:2020:i:17:p:6810-:d:402416
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    Keywords

    income inequality; financial instability; CO 2 emissions; developing countries; STIRPAT;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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