Financial development, income inequality, and CO 2 emissions in Asian countries using STIRPAT model

Abstract

The main purpose of this paper is to find the effects of financial development, income inequality, energy usage, and per capita GDP on carbon dioxide (CO₂) emissions as well the environmental Kuznets curve (EKC) for the three developing Asian countries—Bangladesh, India, and Pakistan. Panel data during the period 1980–2014 and the Stochastic Impacts by Regression on Population, Affluence, and Technology model with fully modified ordinary least squares (FMOLS) are employed for empirical investigation. The results show that financial development has a significant negative relationship with CO₂ emission in the three selected Asian countries with the exception of India. The results further reveal that income inequality in Pakistan and India reduce CO₂ emission, while the result for Bangladesh is opposite. Likewise, energy usage has a significant positive effect on CO₂ emission in Bangladesh, Pakistan, and India. Our empirical analysis based on long-run and short-run elasticity appraisal suggests the validation of the EKC in Pakistan and India. The study findings recommend an important policy insinuation. The study suggests introducing a motivational campaign for the inhabitant towards utilization of high-efficiency electrical appliances, constructing mutual cooperation for economic development rather involve in winning development race, and introducing effective pollution absorption measures along with big projects.