FINANCIAL DEVELOPMENT, INCOME, TRADE, AND URBANIZATION ON CO2 EMISSIONS: NEW EVIDENCE FROM KYOTO ANNEX COUNTRIES

Abstract

This study attempts to empirically investigate the impact of financial development, income, trade openness, and urbanization on carbon dioxide (CO2) emissions for the 21 Kyoto Annex countries using a balance panel data and GMM system over the period of 1970-2016. The results show a positive relationship between income and CO2 emissions in long-run. All models support the EKC hypothesis which assumes an inverted U-shaped relationship among income and environmental degradation. Financial development has a long-run negative influence on CO2 emissions, indicating that financial development reduces the environmental degradation. This means that financial development can be used as an implement to keep the degradation environmental clean by presenting financial reforms. The urbanization declines the CO2 emissions; however, it is essential for the policymakers and urban planners in these countries to control the rapid increase in urbanization. The panel causality confirms that bi-directional causal relationship between financial development, CO2 emissions, income, trade openness, and Urbanization in short-run.