Impact of Economic Growth, Financial Development, and Trade Openness on Environmental Degradation in Egypt

Abstract

This paper examines the effects of economic growth, financial development, and trade openness on the environment quality measured by CO2 emissions over the period of 1965–2014 in the case of Egypt. In this study, the series were stationary at their first difference form, and thus, a long-run model was adopted using the vector error correction model technique. The results confirm that the variables are cointegrated, indicating the long-run relationship between the variables. The empirical findings reveal a negative influence of economic growth and financial effect of the previous period of CO2 emissions, these effects are not significant in the short run. Any deviations from the long-run equilibrium return quickly, representing 59% speed of adjustment. The study proposes new policy insights into reduce CO2 emissions, especially in the long run.