The Effect of Carbon Emissions on Financial Development, CapitalFormation and Economic Growth in Nigeria

Abstract

This study examines the impact of carbon emissions (CO2) on financial development, capital formation, and economic growth in Nigeria from 1991 to 2021. Using the ARDL model and the Toda-Yamamoto causality test. The findings show a positive and significant relationship between economic growth and carbon emissions in the short run, but a negative and significant relationship in the long run. Domestic credit to the private sector has a positive and significant impact on economic growth in both the short and long run. Gross fixed capital formation has a negative and significant impact on economic growth in the short run, but a positive and significant impact in the long run. Trade openness also has a positive and significant impact on economic growth in both the short and long run. The study also reveals a one-way relationship between economic growth and CO2 emissions. These findings suggest governments should prioritize sustainable development and reduction of carbon emissions by investing in renewable energy, improving energy efficiency, and promoting sustainable transportation. Additionally, governments should invest in human capital and infrastructure, including spending on education, healthcare, and transportation.