IDEAS home Printed from https://ideas.repec.org/a/sae/engenv/v35y2024i2p950-985.html
   My bibliography  Save this article

The nexus of financialization and circularity: Evidence from European economies

Author

Listed:
  • Le Thanh Ha

Abstract

This article is the first to study a nexus between financialization and circularity performance in the European region. To reflect the circularity performance, we use six different measures, including the amount of municipal waste, the number of circularity patents, the amount of circular material used, the rate of recycling waste, the rate of recycling biowaste, and the rate of recycling e-waste. By using various econometric techniques (namely a panel-corrected standard errors [PCSE] model, a feasible generalized least square estimates [FGLS] model, and the two-step General Method of Moment [the two-step GMM), our study indicates that financialization is an enabler for circularity. However, these results are only statistically significant for the financial institution's development, while the financial market has a positive yet insignificant impact on circularity performance. The development of the financial institution is reported to increase municipal waste and the amount of recycling biowaste and e-waste, thus promoting the path toward the circular economy. To shed light on the financialization-circularity nexus, we use the different dimensions of financialization dynamics and report heterogeneous influences on the different issues of circularity performance. Furthermore, the results from the dynamic fixed effects (DFE) in the autoregressive distributed lag (ARDL) method suggest that the impact of financial development only becomes apparent in the long term.

Suggested Citation

  • Le Thanh Ha, 2024. "The nexus of financialization and circularity: Evidence from European economies," Energy & Environment, , vol. 35(2), pages 950-985, March.
    • Handle: RePEc:sae:engenv:v:35:y:2024:i:2:p:950-985
    DOI: 10.1177/0958305X221134989
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0958305X221134989
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0958305X221134989?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Shahbaz, Muhammad & Khan, Saleheen & Tahir, Mohammad Iqbal, 2013. "The dynamic links between energy consumption, economic growth, financial development and trade in China: Fresh evidence from multivariate framework analysis," Energy Economics, Elsevier, vol. 40(C), pages 8-21.
    2. Chor Tang & Bee Tan, 2014. "The linkages among energy consumption, economic growth, relative price, foreign direct investment, and financial development in Malaysia," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(2), pages 781-797, March.
    3. Al-mulali, Usama & Binti Che Sab, Che Normee, 2012. "The impact of energy consumption and CO2 emission on the economic and financial development in 19 selected countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(7), pages 4365-4369.
    4. Shahbaz, Muhammad & Shahzad, Syed Jawad Hussain & Ahmad, Nawaz & Alam, Shaista, 2016. "Financial development and environmental quality: The way forward," Energy Policy, Elsevier, vol. 98(C), pages 353-364.
    5. Olimpia Neagu & Mircea Constantin Teodoru, 2019. "The Relationship between Economic Complexity, Energy Consumption Structure and Greenhouse Gas Emission: Heterogeneous Panel Evidence from the EU Countries," Sustainability, MDPI, vol. 11(2), pages 1-29, January.
    6. Karanfil, Fatih, 2009. "How many times again will we examine the energy-income nexus using a limited range of traditional econometric tools?," Energy Policy, Elsevier, vol. 37(4), pages 1191-1194, April.
    7. Farhani, Sahbi & Solarin, Sakiru Adebola, 2017. "Financial development and energy demand in the United States: New evidence from combined cointegration and asymmetric causality tests," Energy, Elsevier, vol. 134(C), pages 1029-1037.
    8. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    9. Islam, Faridul & Shahbaz, Muhammad & Ahmed, Ashraf U. & Alam, Md. Mahmudul, 2013. "Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis," Economic Modelling, Elsevier, vol. 30(C), pages 435-441.
    10. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    11. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 353-377.
    12. Cihak, Martin & Demirguc-Kunt, Asli & Feyen, Erik & Levine, Ross, 2012. "Benchmarking financial systems around the world," Policy Research Working Paper Series 6175, The World Bank.
    13. Beck, Nathaniel & Katz, Jonathan N., 1995. "What To Do (and Not to Do) with Time-Series Cross-Section Data," American Political Science Review, Cambridge University Press, vol. 89(3), pages 634-647, September.
    14. Hua Wang & Yanhong Jin, 2007. "Industrial Ownership and Environmental Performance: Evidence from China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(3), pages 255-273, March.
    15. Korhonen, Jouni & Honkasalo, Antero & Seppälä, Jyri, 2018. "Circular Economy: The Concept and its Limitations," Ecological Economics, Elsevier, vol. 143(C), pages 37-46.
    16. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    17. Husam Rjoub & Jamiu Adetola Odugbesan & Tomiwa Sunday Adebayo & Wing-Keung Wong, 2021. "Sustainability of the Moderating Role of Financial Development in the Determinants of Environmental Degradation: Evidence from Turkey," Sustainability, MDPI, vol. 13(4), pages 1-18, February.
    18. Mohamed Amine Boutabba, 2014. "The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy," Post-Print hal-02877966, HAL.
    19. Fırat Emir & Festus Victor Bekun, 2019. "Energy intensity, carbon emissions, renewable energy, and economic growth nexus: New insights from Romania," Energy & Environment, , vol. 30(3), pages 427-443, May.
    20. Ozcan, Burcu & Tzeremes, Panayiotis G. & Tzeremes, Nickolaos G., 2020. "Energy consumption, economic growth and environmental degradation in OECD countries," Economic Modelling, Elsevier, vol. 84(C), pages 203-213.
    21. Khan, Irfan & Hou, Fujun & Zakari, Abdulrasheed & Tawiah, Vincent Konadu, 2021. "The dynamic links among energy transitions, energy consumption, and sustainable economic growth: A novel framework for IEA countries," Energy, Elsevier, vol. 222(C).
    22. L. Rocchi & L. Paolotti & C. Cortina & F. F. Fagioli & A. Boggia, 2021. "Measuring circularity: an application of modified Material Circularity Indicator to agricultural systems," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 9(1), pages 1-13, December.
    23. Manzoor Ahmad & Zeeshan Khan & Zia Ur Rahman & Shoukat Iqbal Khattak & Zia Ullah Khan, 2021. "Can innovation shocks determine CO2 emissions (CO2e) in the OECD economies? A new perspective," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 30(1), pages 89-109, January.
    24. Alan Murray & Keith Skene & Kathryn Haynes, 2017. "The Circular Economy: An Interdisciplinary Exploration of the Concept and Application in a Global Context," Journal of Business Ethics, Springer, vol. 140(3), pages 369-380, February.
    25. Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Asl, Mahdi Ghaemi & Jalalifar, Saba, 2021. "Financing the green projects: Market efficiency and volatility persistence of green versus conventional bonds, and the comparative effects of health and financial crises," International Review of Financial Analysis, Elsevier, vol. 78(C).
    26. Paul Langley, 2018. "Frontier financialization: Urban infrastructure in the United Kingdom," Economic Anthropology, Wiley Blackwell, vol. 5(2), pages 172-184, June.
    27. Adewuyi, Adeolu O. & Awodumi, Olabanji B., 2017. "Biomass energy consumption, economic growth and carbon emissions: Fresh evidence from West Africa using a simultaneous equation model," Energy, Elsevier, vol. 119(C), pages 453-471.
    28. Boutabba, Mohamed Amine, 2014. "The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy," Economic Modelling, Elsevier, vol. 40(C), pages 33-41.
    29. Caravaggio, Nicola, 2020. "A global empirical re-assessment of the Environmental Kuznets curve for deforestation," Forest Policy and Economics, Elsevier, vol. 119(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ouyang, Yaofu & Li, Peng, 2018. "On the nexus of financial development, economic growth, and energy consumption in China: New perspective from a GMM panel VAR approach," Energy Economics, Elsevier, vol. 71(C), pages 238-252.
    2. Masnun Mahi & Seuk Wai Phoong & Izlin Ismail & Che Ruhana Isa, 2019. "Energy–Finance–Growth Nexus in ASEAN-5 Countries: An ARDL Bounds Test Approach," Sustainability, MDPI, vol. 12(1), pages 1-16, December.
    3. Rafindadi, Abdulkadir Abdulrashid, 2016. "Does the need for economic growth influence energy consumption and CO2 emissions in Nigeria? Evidence from the innovation accounting test," Renewable and Sustainable Energy Reviews, Elsevier, vol. 62(C), pages 1209-1225.
    4. Kahouli, Bassem, 2017. "The short and long run causality relationship among economic growth, energy consumption and financial development: Evidence from South Mediterranean Countries (SMCs)," Energy Economics, Elsevier, vol. 68(C), pages 19-30.
    5. Ulucak, Zübeyde Şentürk & İlkay, Salih Çağrı & Özcan, Burcu & Gedikli, Ayfer, 2020. "Financial globalization and environmental degradation nexus: Evidence from emerging economies," Resources Policy, Elsevier, vol. 67(C).
    6. To Trung Thanh & Le Thanh Ha & Hoang Phuong Dung & Tran Thi Lan Huong, 2023. "Impacts of digitalization on energy security: evidence from European countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(10), pages 11599-11644, October.
    7. Danish, & Ulucak, Recep, 2021. "A revisit to the relationship between financial development and energy consumption: Is globalization paramount?," Energy, Elsevier, vol. 227(C).
    8. Uddin, Md. Kamal & Pan, Xiongfeng & Saima, Umme & Zhang, Chengming, 2022. "Influence of financial development on energy intensity subject to technological innovation: Evidence from panel threshold regression," Energy, Elsevier, vol. 239(PD).
    9. Huaping Sun & Love Enna & Augustine Monney & Dang Khoa Tran & Ehsan Rasoulinezhad & Farhad Taghizadeh-Hesary, 2020. "The Long-Run Effects of Trade Openness on Carbon Emissions in Sub-Saharan African Countries," Energies, MDPI, vol. 13(20), pages 1-18, October.
    10. Qamruzzaman, Md & Jianguo, Wei, 2020. "The asymmetric relationship between financial development, trade openness, foreign capital flows, and renewable energy consumption: Fresh evidence from panel NARDL investigation," Renewable Energy, Elsevier, vol. 159(C), pages 827-842.
    11. Shahbaz, Muhammad & Hoang, Thi Hong Van & Mahalik, Mantu Kumar & Roubaud, David, 2017. "Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis," Energy Economics, Elsevier, vol. 63(C), pages 199-212.
    12. Durusu-Ciftci, Dilek & Soytas, Ugur & Nazlioglu, Saban, 2020. "Financial development and energy consumption in emerging markets: Smooth structural shifts and causal linkages," Energy Economics, Elsevier, vol. 87(C).
    13. Myo Myo Htike & Anil Shrestha & Makoto Kakinaka, 2022. "Investigating whether the environmental Kuznets curve hypothesis holds for sectoral CO2 emissions: evidence from developed and developing countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(11), pages 12712-12739, November.
    14. Pradhan, Rudra P. & Arvin, Mak B. & Nair, Mahendhiran & Bennett, Sara E. & Hall, John H., 2018. "The dynamics between energy consumption patterns, financial sector development and economic growth in Financial Action Task Force (FATF) countries," Energy, Elsevier, vol. 159(C), pages 42-53.
    15. Chris Belmert Milindi & Roula Inglesi-Lotz, 2023. "Impact of technological progress on carbon emissions in different country income groups," Energy & Environment, , vol. 34(5), pages 1348-1382, August.
    16. Khan, Muhammad Tariq Iqbal & Yaseen, Muhammad Rizwan & Ali, Qamar, 2019. "Nexus between financial development, tourism, renewable energy, and greenhouse gas emission in high-income countries: A continent-wise analysis," Energy Economics, Elsevier, vol. 83(C), pages 293-310.
    17. Mert Topcu & Bulent Altay, 2017. "New Insight into the Finance-Energy Nexus: Disaggregated Evidence from Turkish Sectors," IJFS, MDPI, vol. 5(1), pages 1-16, January.
    18. George E. Halkos & Michael L. Polemis, 2017. "Does Financial Development Affect Environmental Degradation? Evidence from the OECD Countries," Business Strategy and the Environment, Wiley Blackwell, vol. 26(8), pages 1162-1180, December.
    19. Ammar Jreisat, 2021. "Financial Development and Economic Growth Impact on the Environmental Degradation in Jordan," International Journal of Energy Economics and Policy, Econjournals, vol. 11(4), pages 157-161.
    20. Magdalena Ziolo & Krzysztof Kluza & Anna Spoz, 2019. "Impact of Sustainable Financial and Economic Development on Greenhouse Gas Emission in the Developed and Converging Economies," Energies, MDPI, vol. 12(23), pages 1-30, November.

    More about this item

    Keywords

    Financial development; the circular economy; European countries;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:engenv:v:35:y:2024:i:2:p:950-985. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.