The nexus between financial development, income level, and environment in Central and Eastern European Countries: a perspective on Belt and Road Initiative

  • Shah SaudEmail author
  • Songsheng ChenEmail author
  • Abdul Haseeb
  • Khalid Khan
  • Muhammad Imran
Research Article


A plethora of empirical work explored finance-income-environment nexus, aims to investigate high CO2 emissions determinants, over the last few couples of decades. The prior empirical work assist the idea that finance and income have diverse impacts on the environment. The lack of consensus on finance-income-environment nexus in the Central and Eastern European Countries in the perspective of Belt and Road Initiative need to be examined. Therefore, the present study explores the nexus between financial development, income level, and environmental quality for a panel of eighteen Central and Eastern European Countries, over the period of 1980–2016. The Dynamic Seemingly Unrelated Regression, the Fully Modified Ordinary Least Squares, and the Dumitrescu-Hurlin panel casualty approaches are employed. The environmental Kuznets curve hypothesis also investigated for both time series panel and country-wise. The Dynamic Seemingly Unrelated Regression long-run panel results reveal that (i) financial development index and income negatively impact on environmental quality; (ii) energy consumption is the key determinant of CO2 emissions and reduces environmental quality; (iii) urbanization and trade both enhance environmental quality via reduction of carbon emissions; and (iv) the environmental Kuznets curve hypothesis supported for the selected panel countries. The country-wise results depict that increase in environmental quality occurs due to increase in financial development (in four countries), income level (in five countries), trade (in five countries), and urbanization (in eight countries). However, the environmental quality decreases due to the increase in financial development (in six countries), income level (in eight countries), energy consumption (in twelve countries), trade (in six countries), and urbanization (in five countries). The environmental Kuznets curve hypothesis supported for five Central and Eastern European Countries. Additionally, the causality results confirmed the presence of feedback relationships among income and environmental quality, and financial development and energy consumption. Thus, we conclude that income level and financial development are the main drivers behind high carbon dioxide emissions in CEECs. The finding of the study opens up new insight for appropriate policymaking.


Financial development index Environmental Kuznets curve Dynamic Seemingly Unrelated Regression CO2 emissions 




European Union


Central and Eastern European Countries


Environmental Kuznets curve


Cross-sectional dependence


Cross-sectional augmented Dickey-Fuller


Lagrange multiplier


Cross-sectional Im, Pesaran and Shin


Dynamic Seemingly Unrelated Regression


Dynamic Ordinary Least Square


Fully modified ordinary least squares


Autoregressive distributed lag


Dumitrescu-Hurlin panel casualty


Vector error correction model


World Health Organization


Middle East and North Africa region


United Nations Framework Convention on Climate Change


Environmental Protection Agency


Selected Small Island Developing States


Agency for International Development


Organization for Economic Co-operation and Development


Brazil, Russia, India, China, and South Africa


One Belt One Road Initiative


Belt and Road Initiative


Association of Southeast Asian Nations







Sulfur dioxide


Carbon dioxide


Greenhouse gasses


Environmental quality


Energy consumption


Financial development index


Belt and Road Initiative


Cross-sectional in the panel


Time period


Error term

αi & δit

Country-specific fixed effects and deterministic trends


Long-run elasticity of the analyzed variable(s)


Considered variable


Cross-sectional in the panel


Residuals of the model


Deterministic components

Gτ and Gα

Group statistics

Pτ and Pα

Panel statistics



The authors wish to thank the editor, Dr. Philippe Garrigues, and anonymous reviewers’ referees for their constructive comments.

Funding information

We thank the financial support from the National Natural Science Foundation of China under the project of NSFC-71672009.71372016.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflicts of interest.


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© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of Management and EconomicsBeijing Institute of TechnologyBeijingPeople’s Republic of China
  2. 2.Institute of Management StudiesUniversity of PeshawarPeshawarPakistan
  3. 3.School of Finance and EconomicsJiangsu UniversityZhenjiangPeople’s Republic of China

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