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The Impact of Financial Institution Quality and Financial Stability on Trade-Adjusted Carbon Emissions: The Moderating Role of Green Innovation and Environmental Taxes

Author

Listed:
  • Magdalena Radulescu

    (National University of Science and Technology Politehnica Bucharest, Pitesti University Center, 110040 Pitesti, Romania
    Institute of Doctoral and Post-Doctoral Studies, University Lucian Blaga of Sibiu, 550024 Sibiu, Romania
    UNEC Research Methods Application Center, Azerbaijan State University of Economics (UNEC), Istiqlaliyyat Str. 6, Baku 1001, Azerbaijan)

  • Ayşe Meriç Yazıcı

    (Department of International Trade and Business, Istanbul Gelisim University, 34310 Istanbul, Turkey)

  • Ayşegül Toy

    (Department of Finance and Banking, Sivas Cumhuriyet University, 58140 Sivas, Turkey)

  • Mesut Öztırak

    (Department of Aviation Management, Istanbul Medipol University, 34815 Istanbul, Turkey)

  • Mesut Dogan

    (Department of Finance, Banking and Insurance, Bilecik Seyh Edebali University, 11230 Bilecik, Turkey)

Abstract

This study analyzes the impact of financial institution quality (FIQ) and financial stability (FSI) on trade-adjusted carbon emissions (TAE) in G7 countries from 2000 to 2022. It also examines whether green innovation (GI) and environmental taxes (ET) moderate this relationship. In the study, long-term coefficient estimations were conducted using the Seemingly Unrelated Regressions (SUR), Panel-Corrected Standard Errors (PCSE), and Driscoll-Kraay standard error estimator methods. The results show that GI, ET, FIQ and FSI variables have a negative and significant effect on TAE. Green innovation and environmental taxes reduce carbon emissions, while strong financial institutions and stable financial systems enhance environmental performance by supporting sustainable investments. The Dumitrescu-Hurlin (D-H) causality test results indicate a unidirectional causal relationship between these variables to carbon emissions. These results highlight the significance of integrating environmental policies with financial systems and promoting GI for sustainable development.

Suggested Citation

  • Magdalena Radulescu & Ayşe Meriç Yazıcı & Ayşegül Toy & Mesut Öztırak & Mesut Dogan, 2025. "The Impact of Financial Institution Quality and Financial Stability on Trade-Adjusted Carbon Emissions: The Moderating Role of Green Innovation and Environmental Taxes," Sustainability, MDPI, vol. 17(7), pages 1-20, March.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:7:p:3073-:d:1624519
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