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The nexus between financial development, income level, and environment in Central and Eastern European Countries: a perspective on Belt and Road Initiative

  • Shah SaudEmail author
  • Songsheng ChenEmail author
  • Abdul Haseeb
  • Khalid Khan
  • Muhammad Imran
Research Article
  • 5 Downloads

Abstract

A plethora of empirical work explored finance-income-environment nexus, aims to investigate high CO2 emissions determinants, over the last few couples of decades. The prior empirical work assist the idea that finance and income have diverse impacts on the environment. The lack of consensus on finance-income-environment nexus in the Central and Eastern European Countries in the perspective of Belt and Road Initiative need to be examined. Therefore, the present study explores the nexus between financial development, income level, and environmental quality for a panel of eighteen Central and Eastern European Countries, over the period of 1980–2016. The Dynamic Seemingly Unrelated Regression, the Fully Modified Ordinary Least Squares, and the Dumitrescu-Hurlin panel casualty approaches are employed. The environmental Kuznets curve hypothesis also investigated for both time series panel and country-wise. The Dynamic Seemingly Unrelated Regression long-run panel results reveal that (i) financial development index and income negatively impact on environmental quality; (ii) energy consumption is the key determinant of CO2 emissions and reduces environmental quality; (iii) urbanization and trade both enhance environmental quality via reduction of carbon emissions; and (iv) the environmental Kuznets curve hypothesis supported for the selected panel countries. The country-wise results depict that increase in environmental quality occurs due to increase in financial development (in four countries), income level (in five countries), trade (in five countries), and urbanization (in eight countries). However, the environmental quality decreases due to the increase in financial development (in six countries), income level (in eight countries), energy consumption (in twelve countries), trade (in six countries), and urbanization (in five countries). The environmental Kuznets curve hypothesis supported for five Central and Eastern European Countries. Additionally, the causality results confirmed the presence of feedback relationships among income and environmental quality, and financial development and energy consumption. Thus, we conclude that income level and financial development are the main drivers behind high carbon dioxide emissions in CEECs. The finding of the study opens up new insight for appropriate policymaking.

Keywords

Financial development index Environmental Kuznets curve Dynamic Seemingly Unrelated Regression CO2 emissions 

Nomenclature

Abbreviations

EU

European Union

CEECs

Central and Eastern European Countries

EKC

Environmental Kuznets curve

CD

Cross-sectional dependence

CADF

Cross-sectional augmented Dickey-Fuller

LM

Lagrange multiplier

CIPS

Cross-sectional Im, Pesaran and Shin

DSUR

Dynamic Seemingly Unrelated Regression

DOLS

Dynamic Ordinary Least Square

FMOLS

Fully modified ordinary least squares

ARDL

Autoregressive distributed lag

DH

Dumitrescu-Hurlin panel casualty

VECM

Vector error correction model

WHO

World Health Organization

MENA

Middle East and North Africa region

UNFCC

United Nations Framework Convention on Climate Change

EPA

Environmental Protection Agency

SSIDS

Selected Small Island Developing States

AID

Agency for International Development

OECD

Organization for Economic Co-operation and Development

BRICS

Brazil, Russia, India, China, and South Africa

OBORI

One Belt One Road Initiative

BRI

Belt and Road Initiative

ASEAN

Association of Southeast Asian Nations

Symbols

GDP

Income

U

Urbanization

SO2

Sulfur dioxide

CO2

Carbon dioxide

GHG

Greenhouse gasses

EQ

Environmental quality

EC

Energy consumption

FD

Financial development index

BRI

Belt and Road Initiative

N

Cross-sectional in the panel

T

Time period

μit

Error term

αi & δit

Country-specific fixed effects and deterministic trends

β

Long-run elasticity of the analyzed variable(s)

Xit

Considered variable

i

Cross-sectional in the panel

εit

Residuals of the model

dt

Deterministic components

Gτ and Gα

Group statistics

Pτ and Pα

Panel statistics

Notes

Acknowledgments

The authors wish to thank the editor, Dr. Philippe Garrigues, and anonymous reviewers’ referees for their constructive comments.

Funding information

We thank the financial support from the National Natural Science Foundation of China under the project of NSFC-71672009.71372016.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflicts of interest.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of Management and EconomicsBeijing Institute of TechnologyBeijingPeople’s Republic of China
  2. 2.Institute of Management StudiesUniversity of PeshawarPeshawarPakistan
  3. 3.School of Finance and EconomicsJiangsu UniversityZhenjiangPeople’s Republic of China

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