Impact of sustainable financial and economic development on greenhouse gas emission in the developed and converging economies

Abstract

Several studies have examined the relationship between environmental performance and economic development. However, most of them did not take sustainable development and financial development into account. The study argues that sustainable financial and economic development contributes to reducing greenhouse gas emissions. We use the panel data regression model to capture the relationship between greenhouse gas emission and sustainable economic and financial development. The panel data refers to the period of 2007–2017. The EU 25 countries were analysed. The results show that the relationship between sustainable financial development and environmental degradation is more relevant for converging economies than developed countries. We found that the variable “energy productivity” has the strongest impact on greenhouse gas emissions for both country groups (converging and developed); however, it increases for developed countries and it decreases the greenhouse gas emissions for converging economies. We also found that environmental taxes are an efficient instrument that mitigates greenhouse gas emissions, especially in developed countries group.