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Testing how financial development led to energy efficiency? Environmental consideration as a mediating concern

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Abstract

This work investigates the relationship of financial development with energy efficiency and economic growth. Due to the coexistence of economic expansion, trade openness, financial development, and urbanization in Indonesia and Turkey, these two countries are considered. Johansen cointegration, error correction, and Granger causality tests are applied to validate the predicted effects of economic activity on the environment. Results show a long-term relationship of Indonesia’s CO2 emissions with five out of six macroeconomic factors, except for urbanization, which has a detrimental effect on carbon emissions. On the other hand, no cointegration across variables is found in the case of Turkey. However, unidirectional causality is observed from energy consumption and economic growth to economic growth. Furthermore, economic growth, energy consumption, and trade openness have a two-way causal effect on financial development. This work encourages Turkish and Indonesian policymakers and regulators to strengthen environmental laws. It also encourages other economies and governments to conduct similar analyses and determine the best course of action.

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Authors and Affiliations

  1. College of Finance, Jiangxi University of Finance and Economics, Nanchang, 330013, Jiangxi, China

    Linyun Zhang & Feiming Huang

  2. School of Finance, Nanjing University of Finance and Economics, Nanjing, China

    Lu Lu

  3. School of Business and Economics, Humboldt University of Berlin, Berlin, Germany

    Xinwen Ni

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  1. Linyun Zhang
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  2. Feiming Huang
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  3. Lu Lu
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Contributions

Write up corrections, data curation, and supervision: Linyun Zhang. Visualization, editing, and writing of draft: Xinwen Ni. Writing, editing, and visualization: Feiming Huang. Conceptualization, methodology, review, and visualization: Lu Lu.

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Correspondence to Lu Lu.

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Zhang, L., Huang, F., Lu, L. et al. Testing how financial development led to energy efficiency? Environmental consideration as a mediating concern. Environ Sci Pollut Res 29, 14665–14676 (2022). https://doi.org/10.1007/s11356-021-16642-z

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