Relationship Between Financial Development Indicators and Greenhouse Gases(With An Emphasis on Urbanization Rates)

emissions and climate change have attracted much attention due to their effects on the global environment. Financial development plays an important role in economic development by reducing information asymmetry and improving the optimal allocation of capital. In addition, many empirical studies confirm that financial development is an important factor in determining the quality of the environment. Financial development allows companies to finance their research and development activities or new facilities, which will have an impact on the environment. There is no consensus on the effect of variables. On the one hand, the growth of the financial sector provides more funds for the energy sector to research new technologies with the aim of reducing greenhouse gas emissions. On the other hand, financial development can increase production activities and increase pollution.  emission and environmental pollution are the most challenging issues discussed today. Therefore, many researchers have discussed these issues. The methods, approaches, and samples investigated in various research have reached contradictory results, and investigations in this field are still ongoing. In MENA countries, the use of fossil fuels and subsequently  emissions is more than in other countries. As our country is among these countries, it is necessary to pay more attention to the factors affecting the reduction of  emissions. Understanding the influence channels of financial development on greenhouse gas emissions and their cause-and-effect relationships is essential for policymakers in reducing pollutant emissions using financial instruments. The content of this article is organized into five parts: In the second part, the background of the studies is given. The third part of this research is the methodology, the explanations of the variables, and the research model. The fourth part is dedicated to model estimation and experimental findings, including the results of research methods, comparison of methods, and descriptive analysis of data using scatter diagrams. The final part includes conclusions and suggestions.

This research has been conducted concerning the impact of financial development indicators on carbon dioxide emissions for 20 member countries of MENA (the Middle East and North Africa) in the period 2000-2020. The data of this research was extracted from the World Bank website, and fully modified least squares (FMOLS), dynamic least squares (DOLS), and pooled mean group (PMG) estimators were used to estimate the long-run coefficients. Carbon dioxide is the dependent variable, the financial development index is one of the main variables, and energy consumption, urbanization rate, and GDP per capita are the control variables of the research.

In order to check the effectiveness of the pooled group average method and the group average, the Hausman test was used in this research. In all three methods, the variables of the financial development index have caused a decrease in  emissions, and economic growth, urbanization rate, and energy consumption have increased it. Among the three methods used, the highest coefficient of influence of variables of financial development index and urbanization rate on emission is related to credits granted to the private sector (0.797) and the DOLS method. The results of all three methods are the same, and it can be argued that the obtained results have sufficient strength.

According to the results of the current research and the effects of financial indicators on greenhouse gases (negative impact on  emissions), it is suggested that financial sectors should encourage and support pollution reduction projects and pay subsidies for research and development. Optimize technologies in energy and help promote and develop sustainable low-carbon industries. Local governments should plan and optimize the existing industrial structure at the time of industrial and financial support in order to reduce pollution and consider the issues of clean energy development and pollution reduction in subsidy, tax, monetary, and financial policies. Financial departments should support the policies of green technology transfer and foreign direct investment in the renewable energy sector. Also, considering that the rate of urbanization increases emissions, it is suggested: The use of pollutant control systems with advanced and modern technology in cities with high populations, policies, and strategies should be adopted with the aim of minimizing migration from rural areas to cities, the effect of increasing urbanization rates on environmental pollution through regulation Environment and technological innovations should be balanced.