Financial Development and CO 2 Emissions in Post-Transition European Union Countries

Carbon dioxide emissions are on the rise, posing a serious global issue. Therefore, it is important that policymakers identify the exact causes of these emissions. This paper investigates the influence of financial development, primary energy consumption, and economic growth on CO 2 emissions in 11 post-transition European economies. The assessment was made for the 1995–2017 period using panel cointegration and causality analyses. The causality analyses did not reveal significant connection between financial sector development and CO 2 emissions, but rather a two-way causality between primary energy consumption and economic growth, on one hand, and CO 2 emissions on the other. Meanwhile, long-run analysis disclosed that financial sector development and primary energy consumption positively affected CO 2 emissions. Our results seek to grab the attention of policy makers, who could work towards creating country-specific strategies that balance the relationship between financial development and CO 2 emissions. These long-term policies could ensure both development of the financial sector and environmental protection.