Munich Personal RePEc Archive

CO2 emissions and financial development: evidence from the United Arab Emirates based on an ARDL approach

Diallo, Abdoulaye Kindy and Masih, Mansur (2017): CO2 emissions and financial development: evidence from the United Arab Emirates based on an ARDL approach.

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Abstract

This paper explores the influence of economic and financial development on carbon emissions in the United Arab Emirates. The study uses the ARDL approach in order to investigate the long run relationship between carbon emissions and a set of economic and financial variables. The long-run and short-run Granger-causal directions are captured through the Error Correction Model (ECM). In order to determine the relative contributions of economic and financial variables to the evolution of per capita carbon emissions, variance decomposition is used. The period considered for the purpose of this study is the full sample (1975–2013). To the best of our knowledge there is no study in this kind focusing only on the United Arab Emirates. Hence we are attempting an humble contribution with this regards. The findings tend to suggest that there is a decline of CO2 emissions in the long run. Also, considering the error correction model output, we can argue that the financial variables, especially the domestic credit to private sector, have an impact in CO2 emissions. This finding is in line with that of Shahbaz et al. (2013) who found out through two different studies (South Africa and Malaysia) that private sector credit had a reducing impact on CO2 emissions.

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