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Investigating the Nexus Between Inflation, Financial Development, and Carbon Emission: Empirical Evidence from FARDL and Frequency Domain Approach

Author

Listed:
  • Sami Ur Rahman

    (Abdul Wali Khan University)

  • Faisal Faisal

    (Abdul Wali Khan University)

  • Fariha Sami

    (Shaheed Benazir Bhutto Women University)

  • Adnan Ali

    (Universiti Teknologi Malaysia
    Shaheed Benazir Bhutto University)

  • Rajnesh Chander

    (Abdul Wali Khan University)

  • Muhammad Yusuf Amin

    (Abdul Wali Khan University)

Abstract

This study investigates the impact of the agriculture and industrial production in the carbon emission function respectively using the quarterly data. The study applied the novel FARDL to identify the evidence of cointegration among the variables of the study. The robustness of the FARDL was investigated using the Bayer-Hanck combine cointegration and ARDL bounds test. Both the tests reinforce the results obtained from the FARDL. Furthermore, the long-run elasticity was identified under the framework of ARDL. The evidence of inverted N-shaped and N-shaped EKC has been identified using industry value added and agriculture production in the carbon emission functions. Financial development has a positive and significant impact on the carbon emissions. Inflation has a positive and significant effect on carbon emission in CO2-agricultural production nexus model only. Additionally, the causal results have been investigated by applying the Breitung and Candelon (Journal of Econometrics 132(2), 363–378, 2006) spectral Granger causality. It was found that agriculture and forestry affected CO2 emissions in the short run, medium run, and long run. The study recommended that the government of Pakistan should focus on the efficient and environment-friendly growing of crops and fertilizers, reducing the scarcity of food and improving the sustainable development. Moreover, the government must impose a carbon tax on the industries, which may finance renewable energy-related projects and forestation.

Suggested Citation

  • Sami Ur Rahman & Faisal Faisal & Fariha Sami & Adnan Ali & Rajnesh Chander & Muhammad Yusuf Amin, 2024. "Investigating the Nexus Between Inflation, Financial Development, and Carbon Emission: Empirical Evidence from FARDL and Frequency Domain Approach," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 292-318, March.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:1:d:10.1007_s13132-022-01076-w
    DOI: 10.1007/s13132-022-01076-w
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