Analysis of the Relationships among Financial Development, Economic Growth, Energy Use, and Carbon Emissions by Co-Integration with Multiple Structural Breaks

In this study, the effects of financial and economic development on energy consumption and CO 2 emissions are analyzed using multiple structural breaks, second-generation panel unit root tests, the Westerlund Cointegration Test, and PMG and MG estimators. Unlike classical studies, financial development is included, in the analysis, as an indicator of the accumulated capital as a result of industrial production that has been realized for many years. We conducted a panel data analysis on 13 developing countries for which we could obtain uninterrupted data in the Morgan Stanley Developing Countries index. We found significant relationships between economic growth, energy usage, and CO 2 emissions. Financial development and carbon emissions are cointegrated in the long-term, and financial development is found to accelerate environmental pollution. Therefore, energy economists should consider the effect of financial development on energy use and carbon emissions in future studies. Policy-makers in emerging markets are also advised to take necessary actions to reduce carbon emissions while increasing financial development. It is important that the same results were obtained in medium- and small-scale countries, as well as in large economies (e.g., China) under the scope of this review.