Stock markets and carbon emissions nexus in Nigeria: Evidence from nonlinear ARDL and causality approaches

Abstract

This paper examines the nexus between stock market development and carbon emissions for Nigeria based on annual data from 1981 to 2020. The study employs a multi-methodological approach, including the nonlinear autoregressive distributed lag approach, vector-error correction modeling, and Granger causality test. The nonlinear ARDL bounds test supports a long-run relationship between carbon emissions, energy intensity, population density, and gross domestic product per capita. Asides, the results show that perturbations in stock market development measured as stock traded have an asymmetric effect on carbon emissions in the short and long run. The results suggest that positive shocks in stock traded have an increasing insignificant effect on carbon emissions. In contrast, negative shocks in stock market development have a significant reducing impact on carbon emissions. Moreover, the results show that causality runs only from decreased stock traded to carbon emissions. Therefore, policy maker must strictly enforce all environmental regulations designed to control carbon emissions that might arise from increased manufacturing activities occasioned by improved stock market developments.