The impact of financial development on carbon emissions under the structural breaks: Empirical evidence from Turkish economy

Abstract

This study aims to examine the impact of financial development on carbon emissions by incorporating economic growth, energy consumption and trade openness to the carbon emissions equation in the case of Turkey for the 1960-2011 period. The unit root properties of the series are investigated through the Zivot-Andrews structural break test. The ARDL bounds test is used to examine a long run relation among the series considering the structural breaks. The causality analysis is performed using the vector error correction model (VECM) Granger causality approach. The empirical findings reveal that (i) there exists a long run relation between the variables in the presence of structural breaks, (ii) financial development, economic growth and trade openness positively affect carbon emission in the long run, (iii) there exists a long run causal linkage running from financial development, economic growth and trade openness to carbon emissions, (iv) the environmental Kuznets curve (EKC) hypothesis is valid for Turkey and (v) economic and financial development has occurred at the expense of environmental degradation. The results may indicate some important policy implications for theTurkish economy. © International Economic Society.