Analysis of the dynamics of environmental degradation for 18 upper middle-income countries: the role of financial development.

This study aims at investigating the dynamics of environmental degradation by focusing on the financial development-CO 2 emissions link. In this purpose, economic growth, renewable energy consumption, trade openness and urbanization are integrated into the CO 2 emissions model as other explanatory variables. In this study, 18 upper-middle-income countries with the highest growth rate in the world are examined for the period 1990-2018 by AMG method, which considers the cross-sectional dependence and slope heterogeneity. In addition, the causal linkages between variables are explored by Dumitrescu-Hurlin panel bootstrap causality technique. As a result of the study, it is found that financial development and renewable energy consumption reduce CO 2 emissions. In addition, it is determined that economic growth, urbanization, and trade openness deteriorate the environmental quality. As a result of causality analysis, while one-way is found from renewable energy consumption to CO 2 emissions, a bidirectional causality is observed between financial development and CO 2 emissions. Empirical findings provide several policy suggestions that decrease CO 2 emissions in these countries.