Impact of financial development on carbon dioxide emissions: empirical evidence from Azerbaijan, Russia, and Kazakhstan

This paper empirically examines how financial sector development affects carbon dioxide emissions in three economically hydrocarbon-dependent post-Soviet economies: Azerbaijan, Russia, and Kazakhstan. To explore this relationship, we employed cointegration techniques to the data from 1990 to 2019. We found that financial sector development has a positive and statistically significant impact on environmental pollution in all three countries. These empirical findings are in line with the theory. While the impact on carbon emissions was highest for Azerbaijan, it was the lowest for Russia. Considering that the chosen countries have resource-dependent economies, as the financial sector becomes more developed and liberalized, it intermediates investments to oil-gas-related projects. Moreover, with the improving economic development in these countries under favorable oil prices, people's living standards increase, and consumers are inclined to spend more on energy consumption-intensive areas to enhance their living conditions, which engenders a rise in carbon dioxide emissions. Since information-intensive industries have not yet been established in the chosen countries, economic activities negatively impact environmental pollution through carbon dioxide emissions. The implications of the empirical results are discussed for energy and financial development policies. This study adds to the existing literature by providing specific evidence from the above-mentioned post-Soviet economies. It highlights the importance of considering financial development as a driver of environmental outcomes. Researchers and policymakers can use these findings to inform energy and financial development policies in similar contexts.