Abstract
This study examines the contribution of financial development to environmental degradation in Saudi Arabia in the period from 1971 to 2016, controlling the model for globalization and electricity consumption. The autoregressive distributive lag (ARDL) and vector error correction methods (VECM) are applied to the long-run and causal relationship, respectively. Empirical results indicate that financial development contributes to CO2 emissions and degrades environmental quality. The results also show that the role of globalization in environmental degradation is insignificant and that electricity consumption is the main culprit behind the growing CO2 emissions in Saudi Arabia. In addition, bidirectional causality exists between globalization and CO2 emissions in the long run, and financial development and CO2 emissions Granger-cause each other. Insights from the study help policymakers to understand the roles of financial development and globalization in environmental degradation and to comply with global mandate for the reduction of CO2 emissions.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
For more details, see http://globalization.kof.ethz.ch/.
References
Abbasi F, Riaz K (2016) CO2 emissions and financial development in an emerging economy: an augmented VAR approach. Energy Policy 90:102–114. https://doi.org/10.1016/j.enpol.2015.12.017
Ahmed K, Shahbaz M, Qasim A, Long W (2015) The linkages between deforestation, energy and growth for environmental degradation in Pakistan. Ecol Indic 49:95–103. https://doi.org/10.1016/j.ecolind.2014.09.040
Alkhathlan K, Javid M (2015) Carbon emissions and oil consumption in Saudi Arabia. Renew Sust Energ Rev 48:105–111. https://doi.org/10.1016/j.rser.2015.03.072
Al-Mulali U, Ozturk I, Lean HH (2015) The influence of economic growth, urbanization, trade openness, financial development, and renewable energy on pollution in Europe. Nat Hazards 79:621–644. https://doi.org/10.1007/s11069-015-1865-9
Baek J, Cho Y, Koo WW (2009) The environmental consequences of globalization: a country-specific time-series analysis. Ecol Econ 68:2255–2264. https://doi.org/10.1016/j.ecolecon.2009.02.021
Baloch MA, Danish, Meng F, et al (2018) Financial instability and CO2 emissions: the case of Saudi Arabia. Environ Sci Pollut Res. https://doi.org/10.1007/s11356-018-2654-2
Bekhet HA, Matar A, Yasmin T (2017) CO2 emissions, energy consumption, economic growth, and financial development in GCC countries: dynamic simultaneous equation models. Renew Sust Energ Rev 70:117–132. https://doi.org/10.1016/j.rser.2016.11.089
Boutabba MA (2014) The impact of financial development, income, energy and trade on carbon emissions: evidence from the Indian economy. Econ Model 40:33–41. https://doi.org/10.1016/j.econmod.2014.03.005
Chang N (2012) The empirical relationship between openness and environmental pollution in China. J Environ Plan Manag 55:783–796. https://doi.org/10.1080/09640568.2011.628087
Chen P-Y, Chen S-T, Hsu C-S, Chen C-C (2016) Modeling the global relationships among economic growth, energy consumption and CO 2 emissions. Renew Sust Energ Rev 65:420–431. https://doi.org/10.1016/j.rser.2016.06.074
Christmann P, Taylor G (2001) Globalization and the environment: determinants of firm self-regulation in China. J Int Bus Stud 32:439–458. https://doi.org/10.1057/palgrave.jibs.8490976
Danish, Baloch MA (2017) Dynamic linkages between road transport energy consumption , economic growth , and environmental quality: evidence from Pakistan. Environ Sci Pollut Res 25:7541–7552. https://doi.org/10.1007/s11356-017-1072-1
Danish, Zhang B, Wang B, Wang Z (2017) Role of renewable energy and non-renewable energy consumption on EKC: evidence from Pakistan. J Clean Prod 156:855–864. https://doi.org/10.1016/j.jclepro.2017.03.203
Danish, Baloch MA, Suad S (2018a) Modeling the impact of transport energy consumption on CO2 emission in Pakistan: evidence from ARDL approach. Environ Sci Pollut Res 25:9461–9473. https://doi.org/10.1007/s11356-018-1230-0
Danish, Khan N, Baloch MA, et al (2018b) The effect of ICT on CO2 emissions in emerging economies: does the level of income matters? Environ Sci Pollut Res 1–11. https://doi.org/10.1007/s11356-018-2379-2
Danish, Saud S, Baloch MA, Lodhi RN (2018c) The nexus between energy consumption and financial development: estimating the role of globalization in Next-11 countries. Environ Sci Pollut Res 25:18651–18661. https://doi.org/10.1007/s11356-018-2069-0
Danish, Wang B, Wang Z (2018d) Imported technology and CO 2 emission in China: collecting evidence through bound testing and VECM approach. Renew Sust Energ Rev 82:4204–4214. https://doi.org/10.1016/j.rser.2017.11.002
Dreher A (2006) Does globalization affect growth? Evidence from a new index of globalization. Appl Econ 38:1091–1110. https://doi.org/10.1080/00036840500392078
Engle RF, Granger CWJ (1987) Co-integration and error correction: representation, estimation, and testing. Econometrica 55:251. https://doi.org/10.2307/1913236
Esso LJ, Keho Y (2016) Energy consumption, economic growth and carbon emissions: cointegration and causality evidence from selected African countries. Energy 114:492–497. https://doi.org/10.1016/j.energy.2016.08.010
International Monetary Fund (2017) Saudi Arabia: financial system stability assessment. www.imf.org/~/media/Files/Publications/CR/2017/cr17318.ashx
Islam F, Shahbaz M, Ahmed AU, Alam MM (2013) Financial development and energy consumption nexus in Malaysia: a multivariate time series analysis. Econ Model 30:435–441. https://doi.org/10.1016/j.econmod.2012.09.033
Jena PR, Ulrike G (2008) Growth-trade-environment nexus in India. In: Proceedings of the German Development Economics Conference, Zürich 2008, No. 18
Johansen S (1988) Statistical analysis of cointegration vectors. J Econ Dyn Control 12:231–254. https://doi.org/10.1016/0165-1889(88)90041-3
Kahouli B (2017) The short and long run causality relationship among economic growth, energy consumption and financial development: evidence from South Mediterranean Countries (SMCs). Energy Econ 68:19–30. https://doi.org/10.1016/j.eneco.2017.09.013
Kais S, Sami H (2016) An econometric study of the impact of economic growth and energy use on carbon emissions: panel data evidence from fifty eight countries. Renew Sust Energ Rev 59:1101–1110. https://doi.org/10.1016/j.rser.2016.01.054
Kanjilal K, Ghosh S (2013) Environmental Kuznet’s curve for India: evidence from tests for cointegration with unknown structuralbreaks. Energy Policy 56:509–515. https://doi.org/10.1016/j.enpol.2013.01.015
Khan AQ, Saleem N, Fatima ST (2017a) Financial development, income inequality , and CO2 emissions in Asian countries using STIRPAT model. Environ Sci Pollut Res 25:6308–6319. https://doi.org/10.1007/s11356-017-0719-2
Khan MTI, Yaseen MR, Ali Q (2017b) Dynamic relationship between financial development, energy consumption, trade and greenhouse gas: comparison of upper middle income countries from Asia, Europe, Africa and America. J Clean Prod 161:567–580. https://doi.org/10.1016/j.jclepro.2017.05.129
Kwabena Twerefou D, Danso-Mensah K, Bokpin GA (2017) The environmental effects of economic growth and globalization in sub-Saharan Africa: a panel general method of moments approach. Res Int Bus Financ 42:939–949. https://doi.org/10.1016/j.ribaf.2017.07.028
Lee K-H, Min B (2014) Globalization and carbon constrained global economy: a fad or a trend? J Asia-Pacific Bus 15:105–121. https://doi.org/10.1080/10599231.2014.904181
Ling CH, Ahmed K, Binti Muhamad R, Shahbaz M (2015) Decomposing the trade-environment nexus for Malaysia: what do the technique, scale, composition, and comparative advantage effect indicate? Environ Sci Pollut Res 22:20131–20142. https://doi.org/10.1007/s11356-015-5217-9
Lütkepohl H (2006) Structural vector autoregressive analysis for cointegrated variables. All Stat Arch 90:75–88. https://doi.org/10.1007/s10182-006-0222-4
Mahalik MK, Babu MS, Loganathan N, Shahbaz M (2017) Does financial development intensify energy consumption in Saudi Arabia? Renew Sust Energ Rev 75:1022–1034. https://doi.org/10.1016/j.rser.2016.11.081
Maji IK, Habibullah MS, Saari MY (2017) Financial development and sectoral CO2 emissions in Malaysia. Environ Sci Pollut Res 24:7160–7176. https://doi.org/10.1007/s11356-016-8326-1
Mirza FM, Kanwal A (2017) Energy consumption, carbon emissions and economic growth in Pakistan: dynamic causality analysis. Renew Sust Energ Rev 72:1233–1240. https://doi.org/10.1016/j.rser.2016.10.081
Narayan PK (2005) The saving and investment nexus for China: evidence from cointegration tests. Appl Econ 37:1979–1990. https://doi.org/10.1080/00036840500278103
Nasreen S, Anwar S, Ozturk I (2017) Financial stability, energy consumption and environmental quality: evidence from south Asian economies. Renew Sust Energ Rev 67:1105–1122. https://doi.org/10.1016/j.rser.2016.09.021
Omri A, Daly S, Rault C, Chaibi A (2015) Financial development, environmental quality, trade and economic growth: what causes what in MENA countries. Energy Econ 48:242–252. https://doi.org/10.1016/j.eneco.2015.01.008
Pesaran MH, Shin Y, Smith RJ (2001) Bounds testing approaches to the analysis of level relationships. J Appl Econ 16:289–326. https://doi.org/10.1002/jae.616
Riti JS, Shu Y, Song D, Kamah M (2017) The contribution of energy use and financial development by source in climate change mitigation process: a global empirical perspective. J Clean Prod 148:882–894. https://doi.org/10.1016/j.jclepro.2017.02.037
Saidi K, Ben Mbarek M (2017) The impact of income, trade, urbanization, and financial development on CO2emissions in 19 emerging economies. Environ Sci Pollut Res 24:12748–12757. https://doi.org/10.1007/s11356-016-6303-3
Saidi K, Hammami S (2015) The impact of energy consumption and CO2 emissions on economic growth: fresh evidence from dynamic simultaneous-equations models. Sustain Cities Soc 14:178–186. https://doi.org/10.1016/j.scs.2014.05.004
Salahuddin M, Alam K, Ozturk I, Sohag K (2017) The effects of electricity consumption, economic growth, financial development and foreign direct investment on CO 2 emissions in Kuwait. Renew Sust Energ Rev 81:2002–2010. https://doi.org/10.1016/j.rser.2017.06.009
Samargandi N (2017) Sector value addition, technology and CO2 emissions in Saudi Arabia. Renew Sust Energ Rev 78:868–877. https://doi.org/10.1016/j.rser.2017.04.056
Samargandi N, Fidrmuc J, Ghosh S (2014) Financial development and economic growth in an oil-rich economy: the case of Saudi Arabia. Econ Model 43:267–278. https://doi.org/10.1016/j.econmod.2014.07.042
Shahbaz M (2013) Does financial instability increase environmental degradation? Fresh evidence from Pakistan. Econ Model 33:537–544. https://doi.org/10.1016/j.econmod.2013.04.035
Shahbaz M, Lean HH, Shabbir MS (2012) Environmental Kuznets curve hypothesis in Pakistan: cointegration and Granger causality. Renew Sust Energ Rev 16:2947–2953. https://doi.org/10.1016/j.rser.2012.02.015
Shahbaz M, Hye QMA, Tiwari AK, Leitão NC (2013a) Economic growth, energy consumption, financial development, international trade and CO2emissions in Indonesia. Renew Sust Energ Rev 25:109–121. https://doi.org/10.1016/j.rser.2013.04.009
Shahbaz M, Kumar Tiwari A, Nasir M (2013b) The effects of financial development, economic growth, coal consumption and trade openness on CO2 emissions in South Africa. Energy Policy 61:1452–1459. https://doi.org/10.1016/j.enpol.2013.07.006
Shahbaz M, Solarin SA, Mahmood H, Arouri M (2013c) Does financial development reduce CO2 emissions in Malaysian economy? A time series analysis. Econ Model 35:145–152. https://doi.org/10.1016/j.econmod.2013.06.037
Shahbaz M, Mallick H, Mahalik MK, Loganathan N (2015) Does globalization impede environmental quality in India? Ecol Indic 52:379–393. https://doi.org/10.1016/j.ecolind.2014.12.025
Shahbaz M, Jam FA, Bibi S, Loganathan N (2016a) Multivariate Granger causality between CO 2 emissions, energy intensity and economic growth in Portugal: evidence from cointegration and causality analysis. Technol Econ Dev Econ 22:47–74. https://doi.org/10.3846/20294913.2014.989932
Shahbaz M, Mahalik MK, Shah SH, Sato JR (2016b) Time-varying analysis of CO2 emissions, energy consumption, and economic growth nexus: statistical experience in next 11 countries. Energy Policy 98:33–48. https://doi.org/10.1016/j.enpol.2016.08.011
Shahbaz M, Mallick H, Mahalik MK, Sadorsky P (2016c) The role of globalization on the recent evolution of energy demand in India: implications for sustainable development. Energy Econ 55:52–68. https://doi.org/10.1016/j.eneco.2016.01.013
Shahbaz M, Shahzad SJH, Ahmad N, Alam S (2016d) Financial development and environmental quality: the way forward. Energy Policy 98:353–364. https://doi.org/10.1016/j.enpol.2016.09.002
Shahbaz M, Solarin SA, Ozturk I (2016e) Environmental Kuznets curve hypothesis and the role of globalization in selected African countries. Ecol Indic 67:623–636. https://doi.org/10.1016/j.ecolind.2016.03.024
Shahbaz M, Bhattacharya M, Mahalik MK (2017a) Financial development, industrialization, the role of institutions and government: a comparative analysis between India and China. Appl Econ 50:1–26. https://doi.org/10.1080/00036846.2017.1383595
Shahbaz M, Shahzad SJH, Mahalik MK (2017b) Is globalization detrimental to CO2 emissions in Japan? New threshold analysis. Environ Model Assess 1–12. https://doi.org/10.1007/s10666-017-9584-0
Shahbaz M, Shahzad SJH, Mahalik MK, Hammoudeh S (2017c) Does globalisation worsen environmental quality in developed economies? Environ Model Assess 1–16. https://doi.org/10.1007/s10666-017-9574-2
Shunsuke M, Akira H, Tetsuya T (2008) Does trade liberalization reduce pollution emissions? RIETI Discuss Pap Ser 08-E-013
Solarin SA (2014) Tourist arrivals and macroeconomic determinants of CO2 emissions in Malaysia. Anatolia 25:228–241. https://doi.org/10.1080/13032917.2013.868364
Tang CF, Tan BW (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
Tiwari AK, Shahbaz M, Adnan Hye QM (2013) The environmental Kuznets curve and the role of coal consumption in India: cointegration and causality analysis in an open economy. Renew Sust Energ Rev 18:519–527. https://doi.org/10.1016/j.rser.2012.10.031
Uddin MGS, Bidisha SH, Ozturk I (2016) Carbon emissions, energy consumption, and economic growth relationship in Sri Lanka. Energy Sources, Part B: Economics, Planning, and Policy 11:282–287. https://doi.org/10.1080/15567249.2012.694577
Wang S, Li Q, Fang C, Zhou C (2016) The relationship between economic growth, energy consumption, and CO2 emissions: empirical evidence from China. Sci Total Environ 542:360–371. https://doi.org/10.1016/j.scitotenv.2015.10.027
Wang Z, Danish, Zhang B, Wang B (2018) The moderating role of corruption between economic growth and CO2emissions: evidence from BRICS economies. Energy 148:506–513. https://doi.org/10.1016/j.energy.2018.01.167
Zhang Y-J (2011) The impact of financial development on carbon emissions: an empirical analysis in China. Energy Policy 39:2197–2203. https://doi.org/10.1016/j.enpol.2011.02.026
Acknowledgements
The authors are grateful to the Editor Muhammad Shahbaz, as well as the two anonymous reviewers, for providing valuable suggestions to improve this manuscript. The authors also want to say thanks to Mary Cole for providing English editing services. This work is commenced under “Humanities and Social Science Fund of Ministry of Education of China (Reference No. 17YJAC30072).”
Author information
Authors and Affiliations
Corresponding author
Additional information
Responsible editor: Muhammad Shahbaz
Rights and permissions
About this article
Cite this article
Xu, Z., Baloch, M.A., Danish et al. Nexus between financial development and CO2 emissions in Saudi Arabia: analyzing the role of globalization. Environ Sci Pollut Res 25, 28378–28390 (2018). https://doi.org/10.1007/s11356-018-2876-3
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11356-018-2876-3