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Investigating the Nexus Between Inflation, Financial Development, and Carbon Emission: Empirical Evidence from FARDL and Frequency Domain Approach

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Abstract

This study investigates the impact of the agriculture and industrial production in the carbon emission function respectively using the quarterly data. The study applied the novel FARDL to identify the evidence of cointegration among the variables of the study. The robustness of the FARDL was investigated using the Bayer-Hanck combine cointegration and ARDL bounds test. Both the tests reinforce the results obtained from the FARDL. Furthermore, the long-run elasticity was identified under the framework of ARDL. The evidence of inverted N-shaped and N-shaped EKC has been identified using industry value added and agriculture production in the carbon emission functions. Financial development has a positive and significant impact on the carbon emissions. Inflation has a positive and significant effect on carbon emission in CO2-agricultural production nexus model only. Additionally, the causal results have been investigated by applying the Breitung and Candelon (Journal of Econometrics 132(2), 363–378, 2006) spectral Granger causality. It was found that agriculture and forestry affected CO2 emissions in the short run, medium run, and long run. The study recommended that the government of Pakistan should focus on the efficient and environment-friendly growing of crops and fertilizers, reducing the scarcity of food and improving the sustainable development. Moreover, the government must impose a carbon tax on the industries, which may finance renewable energy-related projects and forestation.

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Authors and Affiliations

  1. Institute of Business Studies and Leadership, Faculty of Business and Economics, Abdul Wali Khan University, Mardan, Khyber Pukhtunkhwa, Pakistan

    Sami Ur Rahman, Faisal Faisal, Rajnesh Chander & Muhammad Yusuf Amin

  2. Department of Economics, Shaheed Benazir Bhutto Women University, Peshawar, Pakistan

    Fariha Sami

  3. Faculty of Management, Universiti Teknologi Malaysia, Skudai, Johor, 81310, Malaysia

    Adnan Ali

  4. Department of Management Sciences, Shaheed Benazir Bhutto University, Dir Upper, Sheringal, Khyber Pakhtunkhwa, Pakistan

    Adnan Ali

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  1. Sami Ur Rahman
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Contributions

SUR, FF, AA, and RC together proposed the subject of the article and determined the necessary strategies to investigate the direction of the manuscript and performed the empirical analysis to prepare the results of the study. FF, FS, AA, and RC facilitated the team for data collection. In addition, AA and SR greatly facilitated the team in incorporating the revisions. MYA together with FS and FF facilitated in the formatting of the manuscript with grammar corrections and conceptualization. All the authors proofread the manuscript and approved the final version of the manuscript.

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Correspondence to Faisal Faisal.

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Rahman, S.U., Faisal, F., Sami, F. et al. Investigating the Nexus Between Inflation, Financial Development, and Carbon Emission: Empirical Evidence from FARDL and Frequency Domain Approach. J Knowl Econ (2022). https://doi.org/10.1007/s13132-022-01076-w

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