Asymmetric effect of financial development and energy consumption on environmental degradation in South Asia? New evidence from non-linear ARDL analysis

This paper looks at the causes of environmental degradation by regarding the asymmetric effect of financial development and energy consumption in the presence of urbanization and economic growth for South Asia. Using a yearly dataset from 1974 to 2014, this study employs the non-linear autoregressive distributive lag (NARDL) approach to investigate the asymmetry that emerges from positive or negative shocks of financial development and energy consumption. The results of NARDL model assert that the shocks in energy consumption, both positive and negative, significantly contribute to rise the environmental degradation in the long run and also cut down the density of $${\mathrm{CO}}_{2}$$ CO 2 emissions in the short run. In contrast, only a negative shock in financial development has an adverse and significant impact on $${\mathrm{CO}}_{2}$$ CO 2 emissions in the long run. Besides, the results of the ARDL model indicate that financial development declines environmental degradation, while energy consumption evolves the $${\mathrm{CO}}_{2}$$ CO 2 emissions in the long run. This paper suggests that policymakers may strive to attain high economic success using environmental favorable energy consumption and financial development.