Impact of economic and financial development on carbon emissions: evidence from emerging Asian economies

Abstract

Purpose

This paper not only aims to validate the environment Kuznets curve concerning five Asian economies but also attempts to analyze the impact of some additional factors like financial development, energy consumption and foreign direct investment (FDI) on carbon emissions.

Design/methodology/approach

This paper applies pooled mean group approach on the variables of a panel of five Asian economies namely India, Pakistan, Bangladesh, Sri Lanka and Malaysia for a period of 35 years from 1980 to 2014.

Findings

This study finds that while moderate economic growth as well as moderate financial development increase carbon emissions, accelerated or exponential economic growth as well as exponential financial development eventually reduce the level of carbon emissions. Energy consumption was found to have a direct and significant relationship with carbon emissions. FDI inflows when analyzed on a stand-alone basis were observed to have an inverse relationship with carbon emissions, while FDI inflows when clubbed with financial development were observed to have a direct relationship with carbon emissions.

Practical implications

The findings of this study, which validate the environmental Kuznets curve, suggest striving for higher economic growth, even if it causes increased carbon emissions to begin with, as the effects on carbon emissions would eventually get reversed when the economic growth accelerates at a higher rate. This study also suggests the appropriate routing of FDI through a mature and developed financial sector to leverage its impact on the environment in a positive way.

Originality/value

To the best of the knowledge of the authors of this paper, there has not been any research carried out so far, which has analyzed the impact of the combination of variables selected for this study concerning the five Asian economies covered in this paper.

Citation

Rajpurohit, S.S. and Sharma, R. (2021), "Impact of economic and financial development on carbon emissions: evidence from emerging Asian economies", Management of Environmental Quality, Vol. 32 No. 2, pp. 145-159. https://doi.org/10.1108/MEQ-03-2020-0043