Document Type : Original Article

Authors

• Mahdieh Rezagholizadeh
• Yousef Eisazadeh roshan
• Parisa Shahbedini

Department of Economics, Faculty of Economics & Administrative Science, University of Mazandaran, Babolsar, Iran

Abstract

Introduction: Financial development is a process through which the quantity, quality, and efficiency of financial intermediation services are improved. The more the financial system develops, the more financial resources are provided for the development of renewable energy technologies, and as a result, it can have positive environmental impacts by changing the energy supply mix and reducing pollutant emissions. Financial development can affect the level of CO₂ emissions and environmental quality through its impact on economic growth, capital attraction, industrial activities, energy efficiency, technological innovation, investment costs in projects, increased use of renewable energy sources, financial provision, and allocation of credit for renewable energy projects.
The importance of utilizing renewable energy sources and reducing carbon dioxide (CO₂) emissions on one hand, and the need for financial resources and large-scale investments for renewable energy projects on the other, highlights the role and significance of financial development in the level of environmental pollution through CO₂ emissions. Therefore, considering the role and importance of financial development in the value of CO₂ emissions as a criterion for environmental pollution and the significance of examining this relationship at the provincial level, this study investigates the relationship between financial development and CO₂ emissions in the provinces of Iran and at the end, will test the environmental Kuznets hypothesis.
Materials and Methods: This study uses the Dynamic Ordinary Least Squares (DOLS) method to investigate the relationship between financial development and CO₂ emissions in the provinces of Iran during the period of 2009-2021 and answers the question of whether financial development in the provinces of Iran is environmentally friendly (Green) or not. In order to investigate the difference in the relationship between financial development and carbon dioxide emissions at the level of the country's provinces, all provinces are divided into two categories of developed and less developed provinces based on the report of the Economic Statistics Research Group of Iran Statistics Center (2022).
In this study, in order to investigate the impact of financial development and other independent variables on carbon dioxide emissions, a Dynamic Ordinary Least Squares (DOLS) method is used to analyze the coefficients. For this purpose, the following model is considered:
CO2_it=α_i+β₁FD_it+β₂GDP_it+β₃EI_it+β₄URB_it+ɛ_it                                                                      (1)
Where:
CO_2it: Carbon dioxide emissions in each province
FD_it: Composite index of financial development
GDP_it: Real per capita gross domestic product of the provinces
EI_it:  Energy intensity
URB_it: Urbanization rate
Also, in the following, in order to test the Kuznets hypothesis in the studied provinces, model (1) is specified as model (2):
CO2_it=α_i+β₁FD_it+β₂FD²_it+β₃GDP_it+β₄EI_it+β₅URB_it                                                            (2)
Where:
FD²_it: The square of financial development.
 
Results: The results of the estimation of models indicate that in both groups of provinces in the country, financial development is positively significantly associated with carbon dioxide emissions. Additionally, energy intensity, gross domestic product, and urbanization rate are also found to be positively and significantly related to carbon dioxide emissions. The results suggest that financial development may initially lead to an increase in carbon dioxide emissions, but with further development, this effect is reversed, resulting in a reduction in carbon dioxide emissions. This finding confirms the existence of the Environmental Kuznets Curve theory in the studied provinces during the period under investigation.
Discussion: The estimation results indicate that financial development in the provinces of Iran will lead to an increase in carbon dioxide emissions. Furthermore, further investigations confirm the validity of the Kuznets relationship in the provinces of Iran, meaning that in the initial stages of development, the impact of financial development on carbon dioxide emissions will be positive, but over time this relationship becomes negative, leading to a reduction in carbon dioxide emissions.

Keywords

• Financial Development
• Renewable Energy
• Carbon Dioxide Emissions
• Environmental Quality
• Kuznets Curve
• Green Economy

Main Subjects

• Environmental Economics