Assessment of financial development on environmental effect: Implications for sustainable development

This study observes the causal relationships between globalization, urbanization, financial development, consumption of renewable energy and emissions of CO2, in order to asses the implications for sustainable development. It employs panel data of the top ten CO2 emitter countries (Japan, USA, South Korea, Germany, Iran, Canada, Saudi Arabia, China, India and Russia) from 1990 to 2016. Panel co-integration, panel fully modified least squares (PFMOLS) and panel vector error correction model (VECM) tests are used to analyse the data of the study. An empirical result of the panel VECM test reveals unidirectional long term causality from CO2 to financial development (FD), and globalization (GLOB) to urban population (UP). The results of the PFMOLS test show that there are significantly long-term positive relationships of FD and UP with CO2 emissions. Renewable energy consumption has a significantly negative relationship with emissions of CO2. Furthermore, it is recommended to enhance renewable energy consumption in order to lower carbon emissions for sustainable development in the top ten emitter countries.