From Prosperity to Sustainability: Exploring the Relationship between Financial Development, CO2 Emissions, and Government Effectiveness in ASEAN
Abstract
The challenges posed by global climate change have intensified the urgency to reduce carbon emissions worldwide, particularly in rapidly developing regions. Within this context, this study investigates the validity of the Environmental Kuznets Curve (EKC) hypothesis, which proposes a nonlinear relationship between economic growth and environmental degradation. Focusing on the Association of Southeast Asian Nations (ASEAN), the paper examines how financial development and globalization influence carbon emissions while also evaluating the moderating role of government effectiveness. Using panel data from 2000 to 2022, a Fixed Effects model is employed to estimate these relationships. The purpose of this study is to determine whether financial development and globalization drive environmental degradation in ASEAN economies and whether government effectiveness alters the direction or strength of these effects. The novelty of this work lies in integrating governance as a moderating factor within the finance–globalization–environment framework using updated and comprehensive data. This approach provides new empirical insights into how institutional quality shapes the environmental outcomes of rapid financial and global integration. The study’s significance stems from its ability to highlight the conditions under which economic expansion either worsens or alleviates environmental pressure in emerging regions. The empirical results show that financial development, energy consumption, and globalization significantly increase carbon emissions, suggesting that economic and financial growth initially intensifies environmental degradation. In contrast, GDP squared exhibits a negative effect, offering evidence for the EKC hypothesis in the ASEAN context. Moreover, the interaction terms involving government effectiveness with financial development and globalization display strong positive associations with emissions, underscoring the complex role of governance in shaping the finance–environment nexus in ASEAN economies.
Keywords: Carbon Emissions; Financial Development; Globalization; Government Effectiveness; ASEAN Region.
Full Text:
PDFReferences
Adams, S. O., & Klobodu, E. K. M. (2018). Financial development and environmental degradation: Does political regime matter? Journal of Cleaner Production, 197, 1289–1301. https://doi.org/10.1016/j.jclepro.2018.06.109
Adebayo, T. S., Awosusi, A. A., Bekun, F. V., & Agboola, M. O. (2020). The environmental sustainability effects of financial development and energy consumption in sub-Saharan Africa: New evidence from the quantile approach. Environmental Science and Pollution Research, 27(22), 27545–27560. https://doi.org/10.1007/s11356-020-09163-2
Ahmed, Z., Wang, Z., & Ali, S. (2020). Investigating the impact of economic growth, energy consumption, financial development, and globalization on CO₂ emissions: Fresh evidence from developing countries. Environmental Science and Pollution Research, 27(27), 31135–31147. https://doi.org/10.1007/s11356-020-09209-3
Ahmed, Z., Zafar, M. W., & Ali, S. (2021). Linkages between globalization, financial development, and carbon emissions: Evidence from selected countries. Environmental Science and Pollution Research, 28(25), 32414–32427. https://doi.org/10.1007/s11356-021-13277-7
Ali, S., Anwar, S., & Zhang, L. (2019). Urbanization and CO₂ emissions in Pakistan: Long-run relationship and causality analysis. Environmental Science and Pollution Research, 26(15), 15450–15458. https://doi.org/10.1007/s11356-019-04953-5
Al-Mulali, U., Saboori, B., & Ozturk, I. (2015). Investigating the environmental Kuznets curve hypothesis in Vietnam. Energy Policy, 76, 123–131. https://doi.org/10.1016/j.enpol.2014.11.019
Anwar, A., Sinha, A., & Sharif, A. (2022). Globalization, renewable energy, and environmental degradation: Evidence from low-income countries. Renewable Energy, 183, 162–173. https://doi.org/10.1016/j.renene.2021.10.079
Awan, A. B., Azam, M., & Saeed, R. (2020). Globalization, financial development, and CO₂ emissions: Testing the Environmental Kuznets Curve hypothesis in MENA countries. Environmental Science and Pollution Research, 27(20), 25410–25425. https://doi.org/10.1007/s11356-020-09132-3
Balogh, J. M., & Jámbor, A. (2017). Determinants of CO₂ emission: A global evidence. International Journal of Energy Economics and Policy, 7(5), 217–226.
Birdsall, N., & Wheeler, D. (1993). Trade policy and industrial pollution in Latin America: Where are the pollution havens? Journal of Environment & Development, 2(1), 137–149. https://doi.org/10.1177/107049659300200107
Capelle-Blancard, G., & Laguna, M. A. (2010). How does the stock market respond to chemical disasters? Journal of Environmental Economics and Management, 59(2), 192–205. https://doi.org/10.1016/j.jeem.2009.11.002
Charfeddine, L., & Kahia, M. (2018). Impact of renewable energy consumption and financial development on CO₂ emissions and economic growth in the MENA region: A panel vector autoregressive (PVAR) analysis. Renewable Energy, 115, 116–125. https://doi.org/10.1016/j.renene.2017.07.043
Cosmas, N., Onwumere, J. U., & Imo, G. N. (2019). Environmental Kuznets Curve in Nigeria: Investigating the impact of industrialization, GDP, and energy consumption on CO₂ emissions. Environmental Science and Pollution Research, 26(36), 37311–37325. https://doi.org/10.1007/s11356-019-06756-1
Danish, Zhang, B., Wang, B., & Wang, Z. (2018). Role of renewable energy and non-renewable energy consumption on environmental quality: Empirical evidence from Pakistan. Journal of Cleaner Production, 172, 403–411. https://doi.org/10.1016/j.jclepro.2017.10.163
Dasgupta, S., Laplante, B., Wang, H., & Wheeler, D. (2001). Confronting the environmental Kuznets curve. Journal of Economic Perspectives, 16(1), 147–168. https://doi.org/10.1257/jep.16.1.147
Destek, M. A., & Sarkodie, S. A. (2019). Investigation of environmental Kuznets curve for ecological footprint: The role of energy and financial development. Science of the Total Environment, 650(2), 2483–2489. https://doi.org/10.1016/j.scitotenv.2018.10.017
Dogan, E., & Turkekul, B. (2016). CO₂ emissions, real output, energy consumption, trade, urbanization, and financial development: Testing the EKC hypothesis for the USA. Environmental Science and Pollution Research, 23(2), 1203–1213. https://doi.org/10.1007/s11356-015-5323-8
Dong, K., Sun, R., Jiang, H., & Zeng, X. (2019). CO₂ emissions, economic growth, and the environmental Kuznets curve: A comparative analysis of 128 countries. Energy, 175, 1202–1214. https://doi.org/10.1016/j.energy.2019.03.142
Farhani, S., & Ozturk, I. (2015). Causal relationship between CO₂ emissions, real GDP, energy consumption, financial development, trade openness, and urbanization in Tunisia. Environmental Science and Pollution Research, 22(20), 15663–15676. https://doi.org/10.1007/s11356-015-4767-1
Frankel, J. A., & Rose, A. K. (2002). An estimate of the effect of common currencies on trade and income. Quarterly Journal of Economics, 117(2), 437–466. https://doi.org/10.1162/003355302753650292
Ganda, F. (2019). The impact of financial development and FDI on environmental quality: Evidence from BRICS countries. Environmental Science and Pollution Research, 26(13), 13390–13402. https://doi.org/10.1007/s11356-019-04837-8
Grossman, G. M., & Krueger, A. B. (1995). Economic growth and the environment. Quarterly Journal of Economics, 110(2), 353–377. https://doi.org/10.2307/2118443
Gygli, S., Haelg, F., Potrafke, N., & Sturm, J.-E. (2019). The KOF Globalisation Index – Revisited. Review of International Organizations, 14(3), 543–574. https://doi.org/10.1007/s11558-019-09344-2
Hafeez, M., Yuan, C., & Ahmad, A. (2018). Financial development, energy consumption, and environmental degradation in OBOR countries: A panel analysis. Environmental Science and Pollution Research, 25(32), 32468–32482. https://doi.org/10.1007/s11356-018-32482-8
Hartani, M., Benlagha, N., & Abbes, S. M. (2021). Economic growth, renewable energy, and environmental degradation in MENA countries: Fresh evidence from the panel ARDL approach. Environmental Science and Pollution Research, 28(15), 19025–19035. https://doi.org/10.1007/s11356-020-11784-y
Haseeb, A., Xia, E., Baloch, M. A., & Abbas, K. (2018). Financial development, globalization, and CO₂ emissions in BRICS countries: Evidence from panel data analysis. Environmental Science and Pollution Research, 25(31), 31283–31296. https://doi.org/10.1007/s11356-018-3035-7
Hassan, S. T., Xia, E., Huang, J., Khan, N. H., & Iqbal, K. (2019). Exploring the nexus between economic growth, energy consumption, and environmental degradation in developing countries: Fresh insights from dynamic panel data. Environmental Science and Pollution Research, 26(3), 2895–2909. https://doi.org/10.1007/s11356-018-3748-1
Hausman, J. A., & Taylor, W. E. (1981). Panel data and unobservable individual effects. Econometrica, 49(6), 1377–1398. https://doi.org/10.2307/1911406
Huang, Y. (2010). Determinants of financial development. Palgrave Macmillan. https://doi.org/10.1057/9780230283245
Intergovernmental Panel on Climate Change (IPCC). (2013). Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press. https://doi.org/10.1017/CBO9781107415324
Jamel, L., & Derbali, A. (2016). Financial development, energy consumption, and environmental degradation: Evidence from South Asian countries. International Journal of Energy Economics and Policy, 6(3), 623–630.
Jermsittiparsert, K. (2021). The nexus between economic growth, energy use, and CO₂ emissions in ASEAN countries: Evidence from dynamic panel models. International Journal of Energy Economics and Policy, 11(2), 189–197. https://doi.org/10.32479/ijeep.10735
Jugurnath, B., & Emrith, M. (2018). Foreign direct investment and environmental performance in small island developing states (SIDS): An empirical investigation. Journal of Environmental Management, 228, 459–469. https://doi.org/10.1016/j.jenvman.2018.09.040
Katircioğlu, S. T., & Taşpinar, N. (2017). Testing the moderating role of financial development in an environmental Kuznets curve: Empirical evidence from Turkey. Renewable and Sustainable Energy Reviews, 68, 572–586. https://doi.org/10.1016/j.rser.2016.09.127
Kaufmann, D., Kraay, A., & Mastruzzi, M. (2011). The Worldwide Governance Indicators: Methodology and Analytical Issues. Hague Journal on the Rule of Law, 3(2), 220–246. https://doi.org/10.1017/S1876404511200046
Khan, S. A. R., Godil, D. I., Jabbour, C. J. C., & Yu, Z. (2021). Financial development, energy consumption, and CO₂ emissions: An analysis of 184 countries. Journal of Environmental Management, 287, 112340. https://doi.org/10.1016/j.jenvman.2021.112340
Kihombo, S., Ahmed, Z., Chen, S., & Kirikkaleli, D. (2021). Linkages among energy consumption, economic growth, and environmental degradation in ASEAN countries: Fresh insights from panel data analysis. Environmental Science and Pollution Research, 28(43), 61235–61245. https://doi.org/10.1007/s11356-021-14993-1
Majeed, M. T., & Luni, T. (2019). Renewable energy, water withdrawal, and CO₂ emissions: Panel data analysis of 166 countries. Environmental Science and Pollution Research, 26(31), 32217–32230. https://doi.org/10.1007/s11356-019-06398-3
Mujtaba, A., Shahbaz, M., & Xiao, H. (2020). The role of energy consumption, population, and trade in environmental degradation: Evidence from middle-income countries. Environmental Science and Pollution Research, 27(17), 21669–21681. https://doi.org/10.1007/s11356-020-08456-3
Ojogiwa, T. (2021). CO₂ emissions, economic growth, and energy consumption: Evidence from African economies. Environmental Science and Pollution Research, 28(5), 5643–5655. https://doi.org/10.1007/s11356-020-10788-3
Ozturk, I., & Al-Mulali, U. (2015). Investigating the validity of the environmental Kuznets curve hypothesis in Cambodia. Ecological Indicators, 57, 324–330. https://doi.org/10.1016/j.ecolind.2015.05.013
Park, S., Meng, F., & Baloch, M. A. (2018). Internet usage, economic growth, and CO₂ emissions in the European Union: A panel analysis. Environmental Science and Pollution Research, 25(36), 36545–36558. https://doi.org/10.1007/s11356-018-3628-3
Phong, L. H. (2019). Energy use, economic growth, and environmental quality in five ASEAN countries: Evidence of the Environmental Kuznets Curve. Energy Economics, 81, 260–272. https://doi.org/10.1016/j.eneco.2019.04.015
Rahman, M. M., Saidi, K., & Mbarek, M. B. (2020). Economic growth in South Asia: The role of CO₂ emissions, population density, and trade openness. Heliyon, 6(5), e03903. https://doi.org/10.1016/j.heliyon.2020.e03903
Rasool, F., Sharif, A., & Afshan, S. (2019). Transport sector development, oil prices, and CO₂ emissions in Pakistan: Testing the Environmental Kuznets Curve. Environmental Science and Pollution Research, 26(24), 24793–24806. https://doi.org/10.1007/s11356-019-05574-9
Ritchie, H., & Roser, M. (2020). CO₂ and Greenhouse Gas Emissions. Our World in Data. https://ourworldindata.org/co2-and-greenhouse-gas-emissions
Saboori, B., Sulaiman, J., & Mohd, S. (2016). Environmental Kuznets curve and energy consumption in Malaysia: A cointegration approach. Energy Sources, Part B: Economics, Planning, and Policy, 11(3), 282–289. https://doi.org/10.1080/15567249.2011.620637
Sadorsky, P. (2010). The impact of financial development on energy consumption in emerging economies. Energy Policy, 38(5), 2528–2535. https://doi.org/10.1016/j.enpol.2009.12.048
Sadorsky, P. (2011). Financial development and energy consumption in Central and Eastern European frontier economies. Energy Policy, 39(2), 999–1006. https://doi.org/10.1016/j.enpol.2010.11.034
Saidi, K., & Mbarek, M. B. (2016). The impact of income, trade, urbanization, and financial development on CO₂ emissions in 19 emerging economies. Environmental Science and Pollution Research, 23(18), 18753–18763. https://doi.org/10.1007/s11356-016-7126-7
Saud, S., Chen, S., Haseeb, A., Khan, K., & Imran, M. (2019). The nexus between financial development, income level, and environment in Central and Eastern European Countries: A perspective on the Belt and Road Initiative. Environmental Science and Pollution Research, 26(16), 16053–16075. https://doi.org/10.1007/s11356-019-05004-5
Sehrawat, M., Giri, A. K., & Mohapatra, G. (2015). The impact of financial development, economic growth, and energy consumption on environmental degradation in India: Evidence from the Environmental Kuznets Curve. International Journal of Energy Economics and Policy, 5(4), 1252–1258.
Shahbaz, M., Hye, Q. M. A., Tiwari, A. K., & Leitão, N. C. (2013). Economic growth, energy consumption, financial development, international trade and CO₂ emissions in Indonesia. Renewable and Sustainable Energy Reviews, 25, 109–121. https://doi.org/10.1016/j.rser.2013.04.009
Shahbaz, M., Mallick, H., Mahalik, M. K., & Sadorsky, P. (2020). The role of globalization on CO₂ emissions in China: Evidence from the transport sector. Energy Economics, 91, 104880. https://doi.org/10.1016/j.eneco.2020.104880
Shaheen, S., Hussain, M., & Ullah, I. (2020). Impact of energy consumption, GDP, and urbanization on CO₂ and NO₂ emissions: Evidence from developing countries. Environmental Science and Pollution Research, 27(20), 25534–25547. https://doi.org/10.1007/s11356-020-09211-7
Shibli, A., Khan, M. K., & Usman, M. (2021). The impact of globalization and financial development on environmental quality: Evidence from developing countries. Environmental Science and Pollution Research, 28(39), 55055–55067. https://doi.org/10.1007/s11356-021-14629-2
Svirydzenka, K. (2016). Introducing a New Broad-based Index of Financial Development. IMF Working Paper WP/16/5. International Monetary Fund. https://doi.org/10.5089/9781513583709.001
Tahir, T., Awan, A. G., & Ahmad, W. (2021). Globalization, GDP, and financial progress: Impact on environmental degradation in South Asia. Environmental Science and Pollution Research, 28(30), 41185–41197. https://doi.org/10.1007/s11356-021-14038-7
Tamazian, A., Chousa, J. P., & Vadlamannati, K. C. (2009). Does higher economic and financial development lead to environmental degradation? Evidence from BRIC countries. Energy Policy, 37(1), 246–253. https://doi.org/10.1016/j.enpol.2008.08.025
Tang, C. F., & Tan, B. W. (2015). The impact of energy consumption, income, and foreign direct investment on carbon dioxide emissions in Vietnam. Energy, 79, 447–454. https://doi.org/10.1016/j.energy.2014.11.033
Tsimisaraka, S., Tiwari, A. K., & Muhammad, B. (2023). Financial development, globalization, and carbon emissions: New evidence from developing economies. Energy Economics, 118, 106475. https://doi.org/10.1016/j.eneco.2023.106475
Twerefou, D. K., Darkwah, S. A., & Bokpin, G. A. (2017). Economic growth, globalization, and environmental quality in sub-Saharan Africa: Evidence from panel data. Environmental Science and Pollution Research, 24(35), 27102–27116. https://doi.org/10.1007/s11356-017-0398-9
Usman, M., Balsalobre-Lorente, D., & Jahanger, A. (2020). The impact of energy consumption, economic growth, and globalization on CO₂ emissions in South Africa: Testing the EKC hypothesis. Environmental Science and Pollution Research, 27(16), 20089–20103. https://doi.org/10.1007/s11356-020-08461-6
Usman, M., Balsalobre-Lorente, D., & Jahanger, A. (2021). Environmental degradation in developing economies: The role of governance and economic growth. Environmental Science and Pollution Research, 28(6), 6692–6707. https://doi.org/10.1007/s11356-020-10717-4
Van, H. T., Nguyen, T. T., & Hoang, N. T. (2018). Globalization, industrialization, and environmental degradation in Vietnam: Evidence of the Environmental Kuznets Curve. Environmental Science and Pollution Research, 25(13), 12814–12825. https://doi.org/10.1007/s11356-018-1610-3
Wang, Q., & Dong, Z. (2018). The relationship between energy consumption, economic growth, and environmental degradation in sub-Saharan Africa: Evidence from panel cointegration tests. Energy, 152, 111–121. https://doi.org/10.1016/j.energy.2018.03.122
Waqih, M. A., Raza, S., & Shahzad, S. J. H. (2019). Population growth, energy use, and environmental quality: Testing the Population Heaven Hypothesis in SAARC countries. Environmental Science and Pollution Research, 26(23), 23628–23640. https://doi.org/10.1007/s11356-019-05653-9
World Bank. (2022). World Development Indicators (WDI). The World Bank Group. https://databank.worldbank.org/source/world-development-indicators
Yuelan, L., Jie, L., & Weiguo, Z. (2019). Fiscal policy instruments and environmental degradation: Evidence from developing economies. Environmental Science and Pollution Research, 26(17), 17659–17672. https://doi.org/10.1007/s11356-019-04961-4
Zameer, H., Yasmeen, H., & Wang, R. (2020). Exploring the relationship between environmental degradation, renewable energy, and economic growth: Evidence from BRICS countries. Renewable Energy, 151, 1322–1332. https://doi.org/10.1016/j.renene.2019.11.057
Zmami, M., & Salha, O. B. (2020). An empirical analysis of the determinants of CO₂ emissions in GCC countries: Testing the EKC and PHH hypotheses. Environmental Science and Pollution Research, 27(18), 22476–22490. https://doi.org/10.1007/s11356-020-08533-6
Refbacks
- There are currently no refbacks.
