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Does Financial Development Lower Environmental Quality in Saudi Arabia? Fresh Evidence from Linear and Non-linear Specifications

Author

Listed:
  • Muhammad Shahbaz

    (Montpellier Business School, Montpellier, France.)

  • Ilhan Ozturk

    (Cag University, Mersin, Turkey.)

  • Amjad Ali

    (Department of Economics, University of the Punjab, Lahore, Pakistan.)

Abstract

Purpose: This study contributes in existing literature by investigating the impact of financial development on CO2 emissions in Saudi Arabia over the period of 1970-2012. Methodology: We have applied the Bayer-Hanck cointegration approach for long run relationship and innovative accounting aaproach to examine the causality between the variables. Findings: Our results indicated that there is cointegration relationship between the variables. Financial development adds in CO2 emissions but economic growth declines it. The impact of electricity consumption on CO2 emissions is positive and exports also boost CO2 emissions. The relationship between financial development and CO2 emissions is U-shaped i.e. financial development declines CO2 emissions initially but increases it may be due to relaxed regulations regarding environmental degradation. Thus, it can be concluded that CO2 emissions are mainly determined by financial development, electricity consumption and exports. Recommendations: Since Saudi Arabia has environmental problems due to growing in electricity consumption, financial development and exports, it should continue to enforce environmental laws for improving environmental quality in the country.

Suggested Citation

  • Muhammad Shahbaz & Ilhan Ozturk & Amjad Ali, 2016. "Does Financial Development Lower Environmental Quality in Saudi Arabia? Fresh Evidence from Linear and Non-linear Specifications," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 4(7), pages 376-392, July.
  • Handle: RePEc:ijr:journl:v:4:y:2016:i:7:p:376-392
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    More about this item

    Keywords

    Carbon Emissions; Dinancial Development; Saudi Arabia;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • 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

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