The impact of financial development on carbon dioxide emissions in Jamaica

We determine the possible impacts of changes in financial development on carbon dioxide (CO₂) emissions in Jamaica for the period 1980 to 2018, with special attention given to the possible existence of asymmetries in this relationship. There are three major findings. First, there is a unique cointegrating relationship among the variables where CO₂ emissions are a function of financial development, real domestic economic activity, and trade openness. Financial development negatively impacts CO₂ emissions in this relationship, even though CO₂ emissions are impacted positively by rising levels of real domestic economic activity and trade openness. Second, there is an asymmetric impact of changes in financial development in the long run and short run on changes in CO₂ emissions. Third, positive and negative changes in financial development Granger cause CO₂ emissions in the short run. One policy implication of these findings is that strengthening the negative relationship between CO₂ emissions and financial development could lessen the increase in CO₂ emissions associated with rising levels of real domestic economic activity.