The long-run and causal analysis of energy, growth, openness and financial development on carbon emissions in Turkey

The aim of this paper is to examine the causal relationship between financial development, trade, economic growth, energy consumption and carbon emissions in Turkey for the 1960-2007 period. The bounds F‐test for cointegration test yields evidence of a long-run relationship between per capita carbon emissions, per capita energy consumption, per capita real income, the square of per capita real income, openness and financial development. The results show that an increase in foreign trade to GDP ratio results an increase in per capita carbon emissions and financial development variable has no significant effect on per capita carbon emissions in the long- run. These results also support the validity of EKC hypothesis in the Turkish economy. It means that the level of CO2 emissions initially increases with income, until it reaches its stabilization point, then it declines in Turkey. In addition, the paper explores causal relationship between the variables by using error-correction based Granger causality models.

► Relationship between financial development, trade, growth, energy consumption and carbon emissions is examined. ► It shows that an increase in foreign trade results in an increase in carbon emissions. ► Financial development has no significant effect on carbon emissions in the long run. ► These results also support the validity of EKC hypothesis in Turkish economy.