Abstract:

This study aims to investigate the relationship between carbon emission per capita, coal consumption per capita, financial development, income per capita and the square of income per capita in Mexico covering the period from 1971 to 2015 and using autoregressive distributed lag (ARDL) approach, bounds testing, Bayer-Hanck cointegration testing, error correction model and Hatemi-J Asymmetric causality model. The bounds and Bayer-Hanck tests for cointegration indicates that the analyzed variables are cointegrated. ARDL test result revealed that there is a one-way and statistically significant relationship moving from coal consumption per capita, financial development and income per capita to carbon emission per capita in the long-run. The negative impact of financial development on carbon emissions shows that as financial development in Mexico increases, environmental pollution decreases. This inverted U-shaped relationship, which is statistically significant between income per capita and carbon emissions per capita, supports the Environmental Kuznets Curve hypothesis. Applying conservative policies may cause a decrease in economic growth because the increase in coal consumption increases carbon emissions. Therefore, the efficient use of energy resources should be a primary goal of policy makers.

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