The impact of financial development on carbon dioxide emissions in Jamaica

We determine the possible impacts of changes in financial development on carbon dioxide (CO2) emissions in Jamaica for the period 1980 to 2018, with special attention given to the possible existence of asymmetries in this relationship. There are three major findings. First, there is a unique cointegrating relationship among the variables where CO2 emissions are a function of financial development, real domestic economic activity, and trade openness. Financial development negatively impacts CO2 emissions in this relationship, even though CO2 emissions are impacted positively by rising levels of real domestic economic activity and trade openness. Second, there is an asymmetric impact of changes in financial development in the long run and short run on changes in CO2 emissions. Third, positive and negative changes in financial development Granger cause CO2 emissions in the short run. One policy implication of these findings is that strengthening the negative relationship between CO2 emissions and financial development could lessen the increase in CO2 emissions associated with rising levels of real domestic economic activity.

Automated summary

The study found that financial development has a negative impact on CO2 emissions in Jamaica, while rising levels of real domestic economic activity and trade openness have a positive impact on CO2 emissions. Additionally, there is an asymmetric impact of changes in financial development on CO2 emissions in both the long run and short run. Positive and negative changes in financial development can lead to changes in CO2 emissions in the short run. One policy implication is that strengthening the negative relationship between CO2 emissions and financial development could help reduce the increase in CO2 emissions associated with rising levels of real domestic economic activity.