Environmental Kuznets Curve and financial development in Turkey: evidence from augmented ARDL approach

This study examines the effect of economic growth and financial development on CO2 emissions in Turkey in the period of 1965-2018 within the framework of the Environmental Kuznets Curve (EKC) hypothesis. In this context, augment ARDL cointegration and Fourier Toda-Yamamoto causality tests were used. As a result of the research, it was found that economic growth, financial development, and CO2 emissions are cointegrated. That is, they act together in the long run. Thus, according to the long- and short-term findings, it has been determined that the EKC hypothesis is valid in Turkey in the relevant period. However, financial development does not have a statistically significant effect on CO2 emissions. Furthermore, Fourier Toda-Yamamoto causality test findings imply that there is no causality between the variables. In this direction, policy-makers should not neglect environmental regulations and incentives by prioritizing economic growth in choosing between economic growth and environmental degradation. Otherwise, in the long run, the cost of environmental degradation will exceed the benefits of economic growth.