Financial development, globalization, and CO2 emission in the presence of EKC: evidence from BRICS countries

This study examines the impact of energy consumption, financial development, globalization, economic growth, and urbanization on carbon dioxide emissions in the presence of Environmental Kuznets Curve (EKC) model for BRICS economies, by using a family of econometric techniques robust to heterogeneity and cross-sectional dependence. Results from LM test, CIPS and CADF unit root test, Westerlund Cointegration test, the Dynamic seemingly unrelated regression (DSUR), and Dumitrescu-Hurlin Granger causality test show that (i) the data is cross sectionally dependent and heterogeneous; (ii) carbon dioxide emissions, energy consumption, financial development, globalization, economic growth, square of GDP and urbanization have integration of order one; (iii) the examined variables are co-integrated; (iv) energy consumption and financial development contribute to the carbon dioxide emissions whereas globalization and urbanization have negative but insignificant relationship with carbon dioxide emissions; (v) supports the EKC hypothesis in BRICS economies; (vi) bidirectional causality exists among energy consumption, financial development, economic growth and square of GDP with carbon dioxide emissions whereas globalization and urbanization have unidirectional relationship with carbon dioxide emissions. Since these panel techniques account for heterogeneity and cross-sectional dependence in their estimation procedure, the empirical results are robust and reliable for policy recommendations. Furthermore, this study also uses time series tests (ADF, P-P, and FMOLS) to find the empirical results for each of the country and finds mixed results. Empirical findings directed towards some important policy implications.