Energy consumption, financial development, CO2 emissions, and economic growth in 23 developing economies

This study examines the nexus among energy consumption, CO2 emissions, financial development, and economic growth in 23 developing countries. The econometric approach is based on panel pairwise Granger causality and GMM estimations of panel VAR-Granger causality with fixed effects. Our study is probably one of the first to estimate joint relationships between financial (bank credit to private sector and liquid liabilities), energy (primary energy consumption and electricity generation), environmental (CO2 emissions), and economic variables (GDP and inflation rates) in less developed economies over the 2001-2019 period. The results confirm bidirectional causality between financial development and CO2, financial development and GDP, and primary energy consumption and CO2; and unidirectional from financial development to energy consumption and from electricity generation to CO2. We did not find evidence of a relationship between GDP and energy or CO2 emissions. Due to data availability, we could not complement our analysis with further testing, which would enrich the results. The research may guide policymakers in designing policies to reduce contamination, improve energy use, and promote financial development.