Abstract:

This study aims to examine the effects of financial globalization on environmental degradation for Turkey, with annual data covering the period 1970-2017. Although the EKC hypothesis has been examined using a variety of financial variables in the literature, no study has yet been found that deals with these variables as a whole in the Turkish sample. This is the first study to examine the relationship between financial globalization and the environment as a composite and comprehensive variable in the framework of the EKC hypothesis. Increasing commercial activities such as imports and exports are considered the engine of economic growth. However, the sustainability of trade in countries with a savings deficit such as Turkey is more dependent on financial markets. Because structural transformations occurred in the Turkish economy during periods of economic liberalization with an increasing effect of globalization. The possible relationships between the variables were investigated by using the Gregory-Hansen structural break cointegration test. The Fully Modified Least Squares Method (FMOLS), Dynamic Least Squares Method (DOLS), and Canonical Co-integrated Regression (CCR) estimated long-run coefficients. Finally, one of the most frequent methodologies, ARDL, was utilized to perform comparisons and verify robustness. According to the Gregory-Hansen structural break cointegration test results, there is a long-term cointegration relationship between the variables. When the long-term coefficients are estimated, it is seen that the results support the environmental Kuznets hypothesis. Furthermore, a 1% increase in financial globalization has been observed to boost CO2 emissions by some 0.16% in the long term. The ARDL approach also validated this finding.

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