Do financial markets mitigate CO₂ emissions worldwide? Modelling under dynamic panel data
by Indranarain Ramlall
International Journal of Green Economics (IJGE), Vol. 10, No. 2, 2016

Abstract: This study investigates the determinants of CO₂ emissions for a panel of 38 countries for the period spanning from 1988 to 2008. Compared to previous studies, the current research explicitly incorporates the role of financial markets as they are hypothesised to play an important role in abating CO₂ emissions by absorbing funds away from mostly polluting real production activities. Dynamic panel estimation is particularly convenient based on the cumulative nature of CO₂ emissions. Results show strong lagged effects of CO₂ emissions. Energy consumption is found to constitute the most important determinant of CO₂ emissions. Interestingly, financial markets do exert a statistically significant but not economically significant effect on CO₂ emissions as the elasticities values hover around −0.03% to −0.04%. Nonetheless, such a finding signifies that, in the long-run, developed financial markets are inherently imbued with strong scope for greening of the economies. Finally, the positive effect of reserves on CO₂ emissions implies that governments could levy reserves as part of their long-term engagement in reducing the effects of climate change.

Online publication date: Tue, 29-Nov-2016

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