THE NEXUS BETWEEN FINANCIAL DEVELOPMENT AND CARBON EMISSION: SYSTEM GMM APPROACH

Abstract

The study examines empirically the nexus between financial development and carbon emission by giving particular emphasis on non-linear relations between financial development and carbon emission. To this purpose we used data for 52 countries over the period 2001-2014 and estimated the empirical model with System GMM method. The results indicate the validity of environmental Kuznets curve, and the positive significant effect of urban population and electric consumption on the carbon emission. Results indicate that there is U shaped relation between financial development and carbon emission indicating that at higher stages of financial development carbon emission increases by increasing rates. Moreover, the interaction variable between financial development and GDP per capita is positive significant.