Do financing sources affect CO2 emissions? The case of growing ASEAN

Abstract

This paper investigates the impact of financing sources on carbon emissions in Southeast Asia using panel data from six ASEAN states, i.e., Indonesia, Laos, Malaysia, Philippines, Thailand, and Vietnam, from 1986 to 2018. Four financing source variables were used in this analysis: domestic credit, government expenditure, foreign direct investment FDI, and foreign aid. This study employed Pooled Mean Group estimation to assess the impact of each variable alongside Dynamic Fixed Effects to enrich the results. The results confirmed a long-run relationship among the variables and validated the environmental Kuznets curve relationship between income and CO2 emissions. Among the interest variables, government expenditure and FDI are shown to induce carbon emissions in the long run, while foreign aid is found to have an inverse effect on CO2 emissions in both the short and long run.