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The impact of economic growth, energy consumption, trade openness, and financial development on carbon emissions: empirical evidence from Turkey

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Abstract

This study examines the impact of economic growth, energy consumption, trade openness, financial development on carbon emissions for the case of Turkey by using annual time series data for the period of 1960–2013. The Lee and Strazicich test suggests that the variables are suitable for applying the bounds testing approach to cointegration. The cointegration analysis reveals that there exists a long-run relationship between the per capita real income, per capita energy consumption, trade openness, financial development, and per capita carbon emissions in the presence of structural breaks. The results show that in the long run, carbon emissions are mainly determined by economic growth, energy consumption, trade openness, and financial development. The VECM Granger causality analysis indicates a long-run unidirectional causality running from economic growth, energy consumption, trade openness, and financial development to carbon emissions. The findings also show that the EKC hypothesis is valid for Turkey both in the long run and short run. The study provides some implications for policy makers to decrease carbon emissions in Turkey.

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Notes

  1. However, Stern et al. (1996), Ekins (1997), Stern (1997), and Stern and Common (2001) present a critical and comprehensive literature regarding the EKC hypothesis.

  2. See Stern (2000), Soytas et al. (2007), Narayan and Smith (2008), Halicioglu (2009), and Ozturk (2010) for comprehensive reviews.

  3. Since carbon emissions as the primary GHG emission is responsible for global warming and climate change, several studies (e.g., Jalil and Feridun 2011; Sharma 2011; Omri 2013) employ this variable as a main indicator of environmental pollution.

  4. Per capita energy use is generally employed as an explanatory variable in the equation of carbon emissions (Acaravci and Ozturk 2010; Omri 2013).

  5. Following Shahbaz et al. (2014) and Saboori et al. (2014), we use per capita real GDP as a determinant of carbon emissions and it also represents economic growth.

  6. The square of per capita real GDP is a main variable used in several empirical studies related to EKC hypothesis (Akbostanci et al. 2009; Shahbaz et al. 2014).

  7. Jayanthakumaran et al. (2012) and Shahbaz et al. (2013a) use trade openness as an explanatory variable in the carbon emissions function.

  8. It is generally known that the most common proxies for financial development are the ratio of money and quasi-money to GDP, the ratio of liquid liabilities to GDP, the ratio of domestic credit on private sector to GDP, and the ratio of domestic credit provided by the banking sector to GDP (Ang 2009; Sadorsky 2011). However, several studies (e.g., Shahbaz and Lean 2012; Mudakkar et al. 2013) use the ratio of domestic credit on private sector to GDP as the main indicator of financial development.

  9. Free trade brings about environmental pollution owing to economic expansion. This is called the scale effect. According to technique effect, the import of efficient technologies can reduce environmental pollution. The composition effect implies that free trade can decrease or increase environmental pollution depending on whether there exists a comparative advantage in cleaner or dirty industries of a country (Antweiler et al. 2001).

  10. ADF, PP, and Ng-Perron (MZa and MZt) unit root tests use the null hypothesis of a unit root. In these methods, the null hypothesis is tested against the alternative of stationarity. However, Ng-Perron test results are more reliable and consistent compared to the traditional unit root tests. In addition, the problem of over-rejection of null hypothesis can be solved by Ng-Perron test, and it can be performed for small sample size (DeJong et al. 1992).

  11. Narayan (2005) provides the critical bounds which are suitable for small sample (30–80). These are significantly greater than the critical bounds presented by Pesaran et al. (2001) (Narayan and Narayan 2005).

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Cetin, M., Ecevit, E. & Yucel, A.G. The impact of economic growth, energy consumption, trade openness, and financial development on carbon emissions: empirical evidence from Turkey. Environ Sci Pollut Res 25, 36589–36603 (2018). https://doi.org/10.1007/s11356-018-3526-5

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