Revisiting financial expansion and energy efficiency nexus with environment: empirical evidence from RCEP countries

Abstract

The global economies are rapidly taking action to reduce climate change issues. However, RCEP economies are still paying attention to economic stability, while efforts are needed to explore their influencing factors of environmental quality, which are hardly explored in the literature. To fill the gap, this study examines the influence of financial expansion and energy efficiency on carbon emissions in RCEP countries. Covering the extended period from 1990 to 2021, this study employs various diagnostic tests such as the normality test, slope homogeneity, and panel cross-section dependency. The cointegration of all the variables is found to exist. By applying the non-parametric techniques (method of moment quantile regression), the results indicate that economic growth is the only significant factor of environmental deterioration in the region. Whereas, energy efficiency and technological advancement significantly reduce the carbon emissions level. On the contrary, the financial expansion is found asymmetrically affecting the emissions level, which reduces emissions in the lower and medium quantiles while increasing the carbon level in the higher quantiles. The robustness of the results is validated by using quantile regression. This study suggests increased investment in energy efficiency and technological innovation. Also, the results suggested the expansion of the green financial system, which could be a promising tool for the environment and sustainable development.