Document Type : Research Paper
Authors
Razi University
Abstract
Financial development plays an important role in economic development and growth, but the question is what effect does financial development have on environmental quality. The aim of this study is to investigate the effect of institution-based and market-based indicators of financial development on Iran's carbon dioxide emissions in the period of 1960-2022. The estimation of the non-linear ARDL models show that renewable energy significantly leads to CO2 emissions reduction. The Environmental Kuznets Curve in Iran is confirmed. Positive shocks to the institution-based composite index lead to a significant increase in carbon dioxide emissions but positive shocks to the market-based composite index do not lead to a significant increase in CO2 emissions, Negative shocks to the market-based composite index significantly lead to a reduction in CO2 emissions, but negative shocks to the institution-based composite index do not significantly lead to a reduction in CO2 emissions. Therefore, the quality of the environment in Iran shows a different and asymmetric response to shocks to financial development indicators. Financial development, especially in the banking sector, requires complementary policies, including strengthening the use of renewable energies, to control its negative environmental effects. The development of the stock market can be a way for the sustainable development of Iran. The development of financial markets is expected to play an important role in the transition to a low-carbon economy , while the development of financial institutions without considering the expansion of the use of renewable energy and complementary policies makes it difficult to achieve sustainable development.
Keywords
- Carbon dioxide emissions
- institution-based financial development indicator
- market-based financial development indicator
- nonlinear ARDL
Main Subjects
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