Dynamic Links Between Financial Development and Carbon Emission in Nigeria

The study investigates the dynamic link between financial development and carbon emission in Nigeria from 1971 to 2017 using the Vector Error Correction Model (VECM) approach. The study specifically aims at examining the short-run and long-run impact of financial development on carbon emission and examines the causal linkage between financial development and carbon emission in Nigeria. From the findings, it was revealed that financial development had a positive impact in the short-run and negative impact in the long-run on carbon emission in Nigeria, while Gross Domestic Product (GDP) and Energy consumption had a negative impact in the short-run and positive impact in the long-run on carbon emission. The causality test revealed that jointly, financial development, output and energy consumption causes carbon emission, while no direction of causality was found between financial development and carbon emission in Nigeria. The study therefore concludes that financial development is an important determinant of carbon emission and government should work towards increasing investment financial capacity in the economy.