A global prospective of environmental degradations: economy and finance

Finance plays a crucial role in a fast-growing economy that can lead to environmental degradation. The present study utilizes balanced panel data of 105 countries for the time span 1980-2016 to investigate empirical linkage among environmental degradations: economy and finance. It also unfolds the nonlinear impact of economy and finance on environmental degradation. Existing literature on environmental issues mainly focuses on individual case studies uncovering particular regions, but the comprehensive analysis is not available. To fill this gap, panels were classified into five divisions: global, regional, income-based, OECD-based, and carbon emission. The cross-sectional dependence test is applied to identify the degree of cross-sectional dependence among concerned 16 divisions. The second-generation panel models (CADF and Westerlund cointegration, DOLS, and DH heterogenous causality) are employed on a sample set to compute to unit root, cointegration, and long-run and short-run dynamics among concerned variables, respectively. The findings infer the inverted EKC and U-shaped EKC in 10 and 3 out of 16 divisions with respect to environmental degradation-economy nexus, respectively, while 8 and 2 out of 16 divisions indicate the inverted EKC and U-shaped EKC, respectively, in terms of environmental degradation-finance nexus. In 12 out of 16 divisions, the energy consumption uplifts the CO₂ emissions. The DH causality affirmed a bidirectional causality among economy, finance, and energy consumption, respectively.