Environmental Implications of Financial Development in CEE countries

Abstract

The examination considers the causality between financial development and carbon dioxide (CO₂) emissions in the sample of six Central and Eastern European (CEE) countries in the period range between 2000 to 2020. Utilizing the Dumitrescu and Hurlin panel causality test, the results confirmed a one-way causality, where financial development precedes changes in CO₂ emissions. The observed one-way causality suggests that improvements or advancements in financial development might have implications for environmental sustainability. Additionally, the Westerlund error-correction–based panel cointegration tests reveal cointegration between the variables, indicating a stable equilibrium association among them in the complete sample of countries. As countries strive for economic growth and development, it becomes crucial to consider the environmental consequences and adopt measures that promote sustainable practices. Policymakers and stakeholders must proactively recognize the potentially important role of financial development in shaping environmental outcomes and identify opportunities to effectively integrate sustainable practices into financial and economic strategies.