Co2 Emission and Financial Development Nexus in Nigeria: Fresh Insights from Asymmetry Cointegration

Document Type : Research Paper

Authors

1 Department of Economics, Usmanu Danfodiyo University, Sokoto, Nigeria; Faculty of Economics and Business, Universitas Islam Internasional Indonesia, Kota Depok, Indonesia.

2 Department of Economics & Development Studies, Federal University Dutsin-Ma, Katsina, Nigeria

3 Department of Business Education, Kano State College of Education and Preliminary Studies, Kano, Nigeria

Abstract

In recent times, studies on the nexus between carbon emissions and financial development have become plentiful. Very few of them consider the nonlinearity or asymmetry of relationship between financial development indices and C02 emissions. The objective of this study is to explore asymmetric cointegration within the framework of non-linear autoregressive distributed lag model on the emissions-financial development nexus using Nigeria’s data from 1981-2020. Our findings revealed the existence of an asymmetric long run relationship between C02 emissions and financial development measured by credit to private sector, financial deepening and market capitalization. Positive shocks to Credit to private sectors has a negative and significant impact on the emission at 1% level, while negative shock is not statistically significant in explaining emission in Nigeria. Positive shocks of market capitalization insignificantly reduce emissions and vice versa. Moreover, asymmetric shocks of financial deepening have negative and significant effects on emissions in Nigeria. The study therefore recommends that domestic credits to the private sector should be geared towards enhancing renewable energy as more investments are required especially in solar and wind energy. In addition, environmental laws be strengthened and pollution taxes be introduced in order to mitigate the increasing level of C02 released through the consumption spree for energy demanding and C02-emitting goods aided by the increasing level of Nigeria’s financial development.

Keywords

Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 15 May 2023

Files

Share

How to cite

Statistics