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The Impact of Pollution and Carbon Emission Control on Financial Development, Environmental Quality, and Economic Growth: A Global Analysis

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  • Kola Benson Ajeigbe

    (Department of Management Accounting and Finance, Faculty of Economic and Financial Sciences, Walter Sisulu University, Mthatha 5117, South Africa)

  • Fortune Ganda

    (Department of Management Accounting and Finance, Faculty of Economic and Financial Sciences, Walter Sisulu University, Mthatha 5117, South Africa)

Abstract

The global environment has recently been facing sustainability threats owing to industrial and economic expansions. Accordingly, this study empirically examines the impact of carbon emissions and the directional causality between carbon emissions and environmental quality, financial development, and economic growth. We used data from 65 economies from 2010 to 2021, applying fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) approaches. Generally, the findings from the analysis revealed that the estimated coefficients of carbon emissions were negative and significant across the model, except for greenhouse gas emissions, which produced an insignificant result in developed economies. This result proves that an increase in carbon emissions and other forms of pollution are detrimental to environmental quality, economic growth, and financial development. Further results revealed that fossil fuels are positively and significantly related to the economic growth and financial development of selected countries. Empirical outcomes indicate that ineffective control of environmental pollution and carbon emissions is a major challenge to the economic growth trajectories of the selected countries, especially in emerging economies. The results from directional relationships revealed that bi-directional causality exists between CO 2 and GDP; between total greenhouse gas emissions and economic growth, with no directional relationship of CO 2 emissions to financial development and vice versa; and economic growth to CO 2 emissions from gaseous fuel consumption and vice versa. Generally, this outcome indicates that improved environmental quality control can accelerate economic growth and financial development worldwide. This study provides insights to governments, policymakers, international organizations, researchers, and many other stakeholders. This study suggests that stricter fiscal and monetary policies, laws, and regulations, such as environmental taxes and carbon emission taxes, with strong implementation strategies, especially in emerging economies, are strongly recommended worldwide. Further recommendations suggest the development of technologically innovative policies that can counter all the impacts of devastating human activities on the environment, and these are encouraged. A greater consumption of renewable energy and the use of other innovative machines that are environmentally friendly and can help control various forms of pollution and carbon emissions have been encouraged globally.

Suggested Citation

  • Kola Benson Ajeigbe & Fortune Ganda, 2024. "The Impact of Pollution and Carbon Emission Control on Financial Development, Environmental Quality, and Economic Growth: A Global Analysis," Sustainability, MDPI, vol. 16(20), pages 1-23, October.
    • Handle: RePEc:gam:jsusta:v:16:y:2024:i:20:p:8748-:d:1495608
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