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Is growth of the financial sector relevant for mitigating CO2 emissions in Bangladesh? The moderation role of the financial sector within the EKC model

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Abstract

Environmental degradation has become a serious concern of the government of Bangladesh especially due to the limited scope of the nation in transforming its energy systems in an environmentally sustainable manner. Against this backdrop, this study investigates the impacts of financial sector growth, energy consumption, and economic growth on carbon dioxide emissions in Bangladesh over the period from 1980 to 2019. Besides, the possible moderation impacts of financial sector growth are also explored. Accordingly, the analysis is categorized into two segments in which the former does not consider the moderation effect, while the latter takes the moderation effects into account. Overall, the findings show that the environmental Kuznets curve hypothesis holds for Bangladesh. Besides, the growth of the financial sector is witnessed to improve ecological excellence by reducing carbon dioxide emissions in the country. In contrast, higher consumption of energy is seen to stimulate higher emissions of carbon dioxide in the long run. However, when the moderation effects are considered, the environmental Kuznets curve hypothesis no longer holds valid. This indicates that the development of the financial sector alongside directly reducing the emissions also influences the validity of the environmental Kuznets curve hypothesis in Bangladesh. Hence, in light of these findings, this study recommends the Bangladesh government to strategize its financial development policies by taking the environmental objectives into cognizance. Moreover, to tackle the rise in energy use-related emissions, the government should also use the financial sector to catalyze investments in green projects while inhibiting unclean investments in the country.

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Data availability

The datasets generated during and/or analyzed during the current study are available from the corresponding author on reasonable request.

Abbreviations

COP26:

26th Conference of Parties

SDG:

Sustainable development goals

CO2 :

Carbon dioxide

OECD:

Organization for economic cooperation and development

CUSUM:

Cumulative sum of recursive residuals

CUSUMSQ:

Cumulative sum of squares of recursive residuals

FMOLS:

Fully modified ordinary least squares

PP:

Phillips–Perron

ADF:

Augmented Dickey–Fuller

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Acknowledgements

The authors would like to thanks the Science and Technology Research Project of Jiangxi Provincial Department of Education for its financial support for this work.

Funding

This work was financially supported by the Science and Technology Research Project of Jiangxi Provincial Department of Education(GJJ170958).

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Authors and Affiliations

  1. School of Management, Jiujiang University, Jiujiang, 332005, China

    Xia Chen & Md. Atikur Rahaman

  2. School of Management and Economics, Beijing Institute of Technology, Beijing, 100081, China

    Md. Afzal Hossain & Songsheng Chen

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  1. Xia Chen
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  2. Md. Atikur Rahaman
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  3. Md. Afzal Hossain
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  4. Songsheng Chen
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Contributions

Xia Chen was involved in conceptualization; Md. Atikur Rahaman contributed to methodology; Md. Afzal Hossain was involved in formal analysis and investigation and writing—original draft preparation; Songsheng Chen contributed to writing review and editing and supervision;Songsheng Chen and Xia Chen was involved in funding acquisition and resources.

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Correspondence to Md. Afzal Hossain or Songsheng Chen.

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Chen, X., Rahaman, M.A., Hossain, M.A. et al. Is growth of the financial sector relevant for mitigating CO2 emissions in Bangladesh? The moderation role of the financial sector within the EKC model. Environ Dev Sustain 25, 9567–9588 (2023). https://doi.org/10.1007/s10668-022-02447-8

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