How Does Environmental Degradation React to Stock Market Development in Developing Countries?

Abstract

As capital markets develop, the issue of whether this development improves the environmental quality rises very rapidly. Although not very documented, the literature has reached a consensus on the positive role of stock market development on carbon emissions in developing countries. Previous studies, however, do not include great number of countries to reach a broad consensus and assume that the effect does not change over time. Given these motivations, this study examines the impact of stock market development on carbon emissions in a panel of 60 developing countries over the period 1990–2014. Findings reveal that stock market development decreases environmental degradation in the short-run, whereas further development leads to environmental degradation in the long-run. Policy implications depending on these results are also discussed.