Economic growth, financial development, trade openness, and CO2 emissions in European countries

Abstract

We investigate this study to examine the relationship between economic growth, financial development, trade openness and CO2 emissions using the ordinary least squares (OLS) models for a panel data of 40 European countries during the period from 1985 to 2014. To estimate this causality we refer to the Cobb-Douglas production function. The empirical finding indicate that there is evidence of bidirectional causality between economic growth and financial development, economic growth and trade openness, economic growth and CO2 emissions, financial development and trade openness and trade openness and two emissions. From the relationship between economic growth and pollution, we prove the existence of the environmental Kuznets curve. Furthermore, we confirm the feedback hypothesis of the bidirectional causality between trade openness and financial development. Also, we identify the neutrality hypothesis between CO2 emissions and financial development inflows. Finally, we validate the presence of the bidirectional causality between economic growth and financial development and between economic growth and trade openness in case of European countries.