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.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: CO2 emissions, United Arab Emirates, Financial development, FDI, GDP, VECM ARDL
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development ; Environment and Trade ; Sustainability ; Environmental Accounts and Accounting ; Environmental Equity ; Population Growth

References

Abbasi, Faiza, and Khalid Riaz, 2016. CO 2 emissions and financial development in an emerging economy: an augmented VAR approach. Energy Policy 90, 102-114.

Al-Hinti, Ismael, et al. 2013. A comparative analysis of energy indicators and CO2 emissions in 15 Arab countries. International Journal of Environment and Waste Management 11(2), 129-147.

Ang, J.B., 2007. Economic development, pollutant emissions and energy consumption in Malaysia. Journal of Policy Modeling, 30, 271–278.

Bello, A.K., Abimbola, O.M., 2010. Does the Level of Economic Growth Influence Environmental Quality in Nigeria: A Test of Environmental Kuznets Curve (EKC) Hypothesis, Pakistan Journal of Social Sciences, 7 (4), 325–329

Jammazi, R., & Aloui, C. (2015). On the interplay between energy consumption, economic growth and CO2 emission nexus in the GCC countries: A comparative analysis through wavelet approaches. Renewable & Sustainable Energy Reviews, 51, 1737–1751

Lau, L.S., Choong, C.K., Eng, Y.K., 2014. Investigation of the environmental Kuznets curve for carbon emissions in Malaysia: do foreign direct investment and trade matter? Energy Policy, 68, 490–497

Marashdeh, Hazem Ali, 2006. Financial integration of the MENA emerging stock markets, PhD thesis, School of Economic and Information Systems, University of Wollongong.

Narayan, Paresh Kumar, and Seema Narayan, 2010. Carbon dioxide emissions and economic growth: panel data evidence from developing countries. Energy Policy 38(1), 661-666.

Ozturk, I., Acaravci, A., 2010. CO2 emissions, energy consumption and economic growth in Turkey. Renewable and Sustainable Energy Reviews. 14, 3220–3225

Radhi, Hassan. 2009. Evaluating the potential impact of global warming on the UAE residential buildings–a contribution to reduce the CO 2 emissions. Building and Environment 44(12), 2451-2462.

Ren, S., Yuan, B., Ma, X., Chen, X., 2014. International trade, FDI (foreign direct investment) and embodied CO2 emissions: a case study of Chinas industrial sectors. China Economic Review, 28, 123–124

Sadorsky, Perry, 2010. The impact of financial development on energy consumption in emerging economies. Energy Policy 38 (5), 2528-2535.

Shahbaz, M., Solarin, S.A., Mahmood, H., Arouri, M., 2013. Does financial development reduce CO2 emissions in Malaysian economy? A time series analysis. Economic Modelling, 35, 145–152.

Wang, H., Jin, Y., 2007. Industrial ownership and environmental performance: evidence from China. Environmental and Resource Economics, 36 (3), 255–273.