The Impacts of Economic Globalization and Financial Development on Turkey’s Carbon Dioxide Emissions: Do Multi-Dimensional Indices Provide Fresh Evidence?Alper Karasoy
This research investigates the environmental impacts of economic globalization and financial development in Turkey by considering multidimensional indices. Three models are estimated in this research for the 1980-2016 period by employing the augmented autoregressive distributed lag (augmented ARDL) bounds testing procedure. According to the findings, This research investigates the environmental impacts of economic globalization and financial development in Turkey by considering multidimensional indices. Three models are estimated in this research for the 1980-2016 period by employing the augmented autoregressive distributed lag (augmented ARDL) bounds testing procedure. According to the findings,
İktisadi Küreselleşmenin ve Finansal Kalkınmanın Türkiye’deki Karbondioksit Emisyonuna Etkisi: Çok Boyutlu İndeksler Yeni Bulgular Sunuyor Mu?Alper Karasoy
Bu araştırmada, iktisadi küreselleşmenin ve finansal kalkınmanın Türkiye’deki çevresel etkileri çok boyutlu indeksler üzerinden incelenmiştir. Üç modelin tahmin edildiği bu araştırmada, 1980-2016 dönemi temel alınmış ve yöntem olarak genişletilmiş dağıtılmış gecikmeli otoregresif (genişletilmiş ARDL) sınır testi yaklaşımı kullanılmıştır. Araştırmanın bulgularına göre, uzun dönemde, iktisadi ve finansal küreselleşmenin Türkiye’deki karbondioksit emisyonunu etkilemediği fakat ticari küreselleşmenin karbondioksit emisyonunu azalttığı bulunmuştur. İlaveten, kısa dönemde, iktisadi küreselleşme (ticari ve finansal küreselleşme boyutları da dahil olmak üzere) karbondioksit emisyonunu etkilememektedir. Ayrıca finansal kalkınmanın (uzun dönemde veya kısa dönemde) karbondioksit emisyonunu arttırdığı da tespit edilmiştir. Bu sonuçlar, araştırmada kullanılmış kontrol değişkenlerine (gelir, gelirin karesi, enerji tüketimi, sanayileşme ve kentleşme) ait bulgularla birlikte değerlendirilerek çeşitli politika önerileri ileri sürülmüştür.
In the recent literature, many studies have been conducted to examine the determinants of carbon emissions in Turkey. However, many failed to completely capture the effects of the economic globalization and financial development processes experienced in Turkey since the 1980s. They failed because many of them investigated the impacts of these variables on carbon emissions via one-dimensional and limited indicators. For instance, to examine the impact of economic globalization/liberalization, only two proxies, namely trade openness (imports and/or exports as a share of output) and/or foreign direct investments (FDIs), are considered in the existing literature on Turkey (e.g., Cetin & Ecevit, 2017; Karasoy, 2019; Özdemir & Koç, 2020; Öztürk & Saygın, 2020; Z. Öztürk & Öz, 2016). Similarly, to elucidate the financial development’s impact on Turkey’s carbon emissions, domestic credit (provided by the financial sector or to the private sector) is the most frequently employed variable (see, e.g., Dar & Asif, 2018; Gokmenoglu, Taspinar & Rahman, 2020; Ozatac, Gokmenoglu & Taspinar, 2017; Ozturk & Acaravci, 2013).
Although these variables (trade volume, FDIs, and domestic credits) are almost always adopted as proxies for economic liberalization and financial development in the empirical literature for environmental economics, these variables are one-dimensional, and it might be misleading to proxy multi-dimensional concepts such as economic globalization and financial development with one-dimensional variables. To overcome this issue, this research aims to make the following contributions to the extant literature on Turkey:
First, this study proxies economic liberalization/globalization with an economic globalization index constructed by Gygli, Healg, Potrafke and Sturm (2019). This index, which consists of two sub-indices (trade and financial globalization), encompasses not only trade volume and FDIs but also other indicators such as trade partner diversity, portfolio investments, and international reserves/debt that can help capture the economic globalization process better. Besides the economic globalization index, its sub-indices (trade and financial globalization) are also included in different models to decompose economic globalization’s effect on carbon emissions.
Second, this research also employs the financial development index calculated by Svirydzenka (2016). Similar to the economic globalization index, this financial development index is constructed by accounting for different dimensions (financial markets and institutions) and aspects (depth, access, efficiency) of financial development. Employing such a multi-dimensional index to capture the financial development’s effect on carbon emissions is more appropriate, as financial development is defined as a multifaceted process (Svirydzenka, 2016, p. 4).
By including these indices in its models, this research aims to capture how these processes (economic globalization and financial development) impacted Turkey’s carbon emissions and provide multi-dimensional policies. An additional contribution of this research is in its method. In this study, the augmented autoregressive distributed lag (augmented ARDL) bounds testing approach, which is developed by McNown, Sam, and Goh (2018) and Sam, McNown, and Goh (2019), is utilized. The main advantage of this method is that, unlike the typical ARDL approach of Pesaran, Shim, and Smith (2001), it allows the dependent variable (carbon dioxide emissions) in the models to be a nonintegrated process (i.e., I(0)). This property is rather practicable because unit-root tests usually provide conflicting results.
Moreover, in line with the literature, besides economic globalization and financial development indices, this research includes additional control variables (income, income squared, energy consumption, industrialization, and urbanization) in its models to minimize the omitted variable bias. The findings of this research show that while economic and financial globalization do not significantly affect carbon emissions in Turkey, trade globalization negatively affects them in the long run. Furthermore, financial development intensifies Turkey’s carbon dioxide emissions. Additional findings also imply that energy consumption, industrialization, and urbanization amplify carbon dioxide emissions in Turkey. Lastly, income does not have an inverted-U shape impact on carbon emissions in the majority of the estimated models, indicating that the environmental Kuznets curve hypothesis is not accepted for the sample period. In the light of these findings, some policy implications are stated.