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The Asymmetric and Long-Run Effect of Financial Stability on Environmental Degradation in Norway

Author

Listed:
  • Dervis Kirikkaleli

    (Department of Banking and Finance, Faculty of Economics and Administrative Sciences, European University of Lefke, Lefke 99010, Turkey)

  • Rui Alexandre Castanho

    (Faculty of Applied Sciences, WSB University, 41-300 Dąbrowa Górnicza, Poland
    College of Business and Economics, University of Johannesburg, P.O. Box 524, Auckland Park, Johannesburg 2006, South Africa)

  • Sema Yilmaz Genc

    (Department of Economics, Faculty of Economics and Administration Sciences, Yildiz Technical University, Istanbul 34210, Turkey)

  • Modupe Oluyemisi Oyebanji

    (Department of Business Administration, Faculty of Economic and Administrative Sciences, European University of Lefke, Lefke 99010, Turkey)

  • Gualter Couto

    (School of Business and Economics and CEEAplA, University of Azores, 9500-321 Ponta Delgada, Portugal)

Abstract

Risks associated with climate change can have an injurious impact on the economy as well as the financial system as a whole. There is a possibility that certain risks, such as losses to financial intermediaries and disruptions in the functioning of financial markets, can aggravate vulnerabilities in the financial system under certain conditions, including sudden increases in the prices of large asset classes. Using the dataset for Norway between 1995 and 2018, this study investigates how financial stability affects environmental degradation in Norway while controlling openness in trade, ecological clean energy, and economic growth. Findings from the results demonstrate that (i) financial stability causes a reduction in environmental degradation; (ii) growth causes carbon emissions to climb significantly; and (iii) renewable energy has been favorable for emissions in Norway. Lastly, surprisingly, trade openness causes a decline in carbon emissions. The study recommends that since financial stability in Norway reduces environmental degradation by incorporating climate-related risks into the financial stability monitoring framework, it can contribute to lowering carbon emissions to a greater extent. Norway’s policymakers should conduct detailed analyses of the role of global emissions in long-term petroleum policy and the economic viability of selected climate policy scenarios before implementing such a policy. Moreover, policymakers should be updated on the financial system’s vulnerabilities, considering climate-related shocks are likely to affect all financial systems. In addition, policymakers should encourage the use of sustainable energy to raise the availability of reliable, affordable, and sustainable energy to everyone.

Suggested Citation

  • Dervis Kirikkaleli & Rui Alexandre Castanho & Sema Yilmaz Genc & Modupe Oluyemisi Oyebanji & Gualter Couto, 2022. "The Asymmetric and Long-Run Effect of Financial Stability on Environmental Degradation in Norway," Sustainability, MDPI, vol. 14(16), pages 1-15, August.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:16:p:10131-:d:889039
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    2. Yahya, Farzan & Lee, Chien-Chiang, 2023. "Disentangling the asymmetric effect of financialization on the green output gap," Energy Economics, Elsevier, vol. 125(C).

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