Total factor productivity and environmental quality: measuring the role of financial stability in BRICS countries

The impact of BRICS countries on global climate mitigation strategies is significant due to their considerable CO2 emissions. The rapid advancement of BRICS nations has adversely affected environmental conditions. This study investigates the relationship between total factor productivity (TFP) and CO2 emissions in BRICS countries from 2000 to 2022, taking financial stability into consideration as a moderating variable. To address cross-sectional dependency, various methodologies were used, such as the cross-sectional augmented distributed lag (CS-ARDL) approach for assessing long- and short-run effects, as well as the Dumitrescu-Hurlin causality test to explore causality relationships. Results reveal a positive relationship between TFP and CO2 emissions, while financial stability exerts a negative influence on CO2 emissions. Additionally, the combined effect of TFP and financial stability demonstrates a capability to alleviate environmental issues and enhance environmental conditions. This implies that financial stability works as a moderator in the nexus between TFP and CO2 emissions, and bolstering financial stability not only diminishes environmental concerns but also aids BRICS countries in reducing the adverse effects of TFP on the environment. Furthermore, the study unveils bidirectional causality relationship between CO2 emissions and all other variables. Recommendations from the study propose that BRICS nations should allocate increased resources toward environmental initiatives and embrace advanced technologies to mitigate CO2 emissions.