Environmental Science and Pollution Research (2021) 28:32554–32563

https://doi.org/10.1007/s11356-021-12661-y

RESEARCH ARTICLE

Testing the long-run effects of economic growth, financial

development and energy consumption on CO2 emissions in Turkey:
new evidence from RALS cointegration test
Murat Doğanlar 1 & Faruk Mike 2 & Oktay Kızılkaya 3 & Selin Karlılar 4

Received: 16 November 2020 / Accepted: 20 January 2021 / Published online: 24 February 2021
# The Author(s), under exclusive licence to Springer-Verlag GmbH, DE part of Springer Nature 2021

Abstract
This study analyses the long-run effects of economic growth, energy consumption and financial development on carbon
dioxide (CO2) emissions in Turkey using annual time series data for the period 1965–2018. This research investigates the
relationship between the variables using a RALS-EG (residual augmented least squares–Engle and Granger) cointegration
test procedure developed by Lee et al. Stud Nonlinear Dyn Econ 19:397–413, (2015). In addition, this study uses a
bootstrap causality analysis developed by Hacker and Hatemi-J J Econ Stud 39:144–160, (2012) to specify the causal
relationship between the series. RALS cointegration test results show a long-run relationship between CO2 emissions and
economic growth, energy consumption and financial development. According to a dynamic ordinary least squares esti-
mation, economic growth has a negative and statistically significant effect on CO2 emissions, whereas energy consump-
tion and financial development have positive and statistically significant effects on CO2 emissions in the long run. In
particular, energy consumption is the most effective parameter of environmental pollution in Turkey. However, the
causality test results indicate a unidirectional causal relationship from financial development to CO2 emissions, economic
growth and energy consumption. Increasing the investment in renewable energy sources will be an effective policy tool to
improve the environmental quality in Turkey.

Keywords CO2 emissions . Economic growth . Energy consumption . Financial development . RALS cointegration . Turkey

JEL classifications Q4 . Q5 . C32

Introduction Nations, are making great efforts to create global awareness

of the potential disasters related to this issue and to stir the
Climate change and global warming are among the issues world to prevent them. Some current environmental disasters
most discussed by researchers and are of the highest concern. justify those concerns: among these problems are geographic
Many international organisations, most notably, the United effects such as the melting of glaciers, biological effects such

Responsible Editor: Nicholas Apergis

* Faruk Mike 1
Institute of Social Sciences, International Vision University,
farukmike@hakkari.edu.tr Gostivar, Republic of North Macedonia
2
Faculty of Economics and Administrative Sciences, Department of
Murat Doğanlar Economics, Hakkari University, 30000 Hakkari, Turkey
murat.doganlar@vizyon.edu.mk 3
Faculty of Business Administration and Management, Department of
Oktay Kızılkaya International Trade and Finance, Malatya Turgut Özal University,
oktay.kizilkaya@ozal.edu.tr 44210 Malatya, Turkey
4
Faculty of Business and Economics, Department of Economics,
Selin Karlılar Eastern Mediterranean University, via Mersin,
selin.karlilar@emu.edu.tr 10 Famagusta, Northern Cyprus
Environ Sci Pollut Res (2021) 28:32554–32563
as the spreading of infectious diseases and species extinction
and environmental effects such as increasingly severe tropical
storms, tornados and floods.
Scientific researchers have explained that the key reason
for climate change is greenhouse gas emissions (GHGs) aris-
ing from human activities (e.g. electricity generation, land use
changes, agricultural production and transportation) (Stern
2006). Carbon dioxide (CO2), methane (CH4) and nitrogen
oxide (NO2) emissions are the three most important determi-
nants of GHG emissions articulated within the framework of
the Kyoto Protocol1. Among these variables, CO2 emissions
are the most important parameter in causing global warming
(Mejia et al. 2018). According to a report from the United
Nations Environment Program (2019), in 2018, CO2 emis-
sions comprised approximately 67.8% of GHG emissions.2
The report considers activities in the G20 countries the main
source of this level of emissions.
The remarkable role of CO2 emissions in climate change
has paved the way for intensive research in many different
disciplines (social, environmental, etc.). In the economics lit-
erature, the research process developed in three main stages.
In the first stage, the environmental Kuznets curve (EKC)
hypothesis, which investigated the “growth-pollution nexus”,
was developed. This hypothesis, which describes an inverted
U-shaped relationship between economic growth and environ-
mental degradation, was based on work by Kuznets (1955),
who postulated the income–inequality nexus. After the semi-
nal work of Grossman and Krueger (1991), this relationship
attracted many researchers to test the EKC hypothesis. Their
results offered strong evidence that the initial stage of eco-
nomic growth leads to environmental degradation but only
up to certain threshold levels of growth. Above this level,
environmental degradation begins to decrease. In this context,
many studies have mixed empirical findings, of which a sig-
nificant number confirm the validity of the EKC hypothesis
(Ang 2007; Jalil and Mahmud 2009; Saboori et al. 2012;
Boutabba 2014; Shahbaz et al. 2014; Al-Mulali et al. 2015;
Omri et al. 2015; Tang and Tan 2015). Other studies confirm
the presence of an N-shaped curve (Moomaw and Unruh
1997; Friedl and Getzner 2003; Akbostancı et al. 2009), and
yet others produce evidence of a monotonically rising curve
(Fodha and Zaghdoud 2010; Farhani and Ozturk 2015;
Antonakakis et al. 2017).
Second, an important discussion has been occurred about
researching the “growth–energy consumption nexus” in the
literature. Following the pioneering work of Kraft and Kraft
(1978), the studies addressing this relationship fall into four
different categories. The first is the growth hypothesis, which
1
Others are perfluorocarbons (PFCs), hydrofluorocarbons (HFCs) and sul-
phur hexafluoride (SF6) emissions called F-gases.
2 emissions, approximately 390 million tons (about 1.2% of the
GHG emissions (including land use changes) in 2018 totalled 55.3 GtCO2,
of which CO2 emissions arising from fossil fuel-based energy use were 37.5
GtCO2 which makes 67.8% of the total.
32555
emphasises a relationship with unidirectional causality from
energy consumption to economic growth (Soytas and Sari
2003; Saboori et al. 2012). The second is the conservation
hypothesis, which reveals the causality running from econom-
ic growth to energy consumption (Soytas and Sari 2003). The
third is the feedback hypothesis, which proposes a bidirection-
al relationship between energy consumption and economic
growth (Belke et al. 2011; Al-Mulali 2011; Shahbaz and
Lean 2012; Tang and Tan 2014). The final is the neutrality
hypothesis, which stresses no dynamic link between energy
consumption and economic growth.
Third, the “financial development–pollution nexus” has
been extensively studied in the literature to reveal the effects
of financial market development on environmental degrada-
tion. The positive view focuses on the assumption that finan-
cial market development can provide opportunities for imple-
mentation of environmentally friendly projects, which can
gradually reduce environmental pollution (Tamazian et al.
2009). In contrast, the negative view emphasises that financial
development can cause more environmental pollution by in-
creasing industrial activity (Sadorsky 2010). Accordingly,
many studies on the financial development–pollution nexus
consider different financial market indicators (or proxies). In
particular, the ratio of domestic credit to the private sector
(Shahbaz and Lean 2012; Islam et al. 2013; Boutabba 2014;
Al-Mulali et al. 2015; Cetin and Bakirtas 2020) and foreign
direct investment (FDI) (Ren et al. 2014; Tang and Tan 2014;
Gökmenoğlu and Taspinar 2016) are widely used as proxies
for financial development. Some studies use stock market var-
iables (Sadorsky 2010), money and quasi-money variables
(Adu et al. 2013; Abosedra et al. 2015) and deposit money
bank assets (Beck et al. 2000; Creane et al. 2007). In this
framework, many empirical studies have mixed results.
Numerous studies have proven that financial market develop-
ment has an environmentally friendly effect on societies
(Dasgupta et al. 2001; Tamazian et al. 2009; Tamazian and
Rao 2010; Jalil and Feridun 2011; Boutabba 2014; Al-Mulali
et al. 2015). But, others have shown that financial develop-
ment creates environmental degradation (Zhang 2011; Islam
et al. 2013; Tang and Tan 2014; Cetin and Bakirtas 2020).
And still, other studies have found that the impact of financial
development on environmental quality is insignificant
(Ozturk and Acaravci 2013; Omri et al. 2015; Salahuddin
et al. 2018).
This study analyses the effect of economic growth, energy
consumption and financial development on CO2 emissions in
Turkey as an emerging market economy. Turkey is a member
of the G20 with the goal of membership in the European
Union. According to British Petroleum (BP 2019) statistics,
in 2018, Turkey had the world’s seventeenth-largest carbon
total world emissions), an increase of almost 210% (about 185
million tons) over the level in 1965. These facts reveal some
32556 Environ Sci Pollut Res (2021) 28:32554–32563

important questions for Turkey, which has the potential for
import-dependent production and a fragile financial structure:
Do economic activities cause environmental pollution in
Turkey? If so, what are the impacts of economic growth and
foreign capital investments on this problem? And, perhaps,
the crucial question is: “Which of the growth and environmen-
tal quality factors is more dispensable for the Turkish
economy?
Several studies have explored these questions regarding the
relationship between various economic activities and environ-
mental pollution in Turkey (Table 1). Almost all these studies
were performed using traditional test methods, such as
autoregressive distributed lag (ARDL), the Johansen
cointegration test and Granger causality analysis. In addition
to these methods, this study uses residual augmented least
squares (RALS) cointegration analysis, a stronger, more re-
cently developed test procedure. This approach is our main
contribution to the literature. To the best of our knowledge,
this study is the first to investigate the relationship between
economic activities and environmental pollution in Turkey
using the RALS cointegration approach. Moreover, this study
employs bootstrap causality analysis, developed by Hacker
and Hatemi-J (2012) to specify the causal relationship be-
tween series.
Using the RALS-based cointegration test has some advan-
tages. First, RALS-based cointegration tests are more power-
ful than cointegration tests, which do not use information in
nonnormal errors. Higher moments of the error term (or resid-
uals) include information on the nature of nonnormal errors if
the errors do not show a normal distribution (Lee et al. 2015).
The second advantage is that the RALS procedure uses non-
linear moment conditions associated with nonnormal errors
and does not need to use nonlinear estimation techniques
(Lee et al. 2015). Misidentifying the functional form causes
power loss in nonlinear cointegration tests. Because RALS-
based tests use the information in nonnormal errors in a linear
model framework, the RALS testing procedure avoids this
potential power loss. Nonnormal errors can reflect the partial-
ly neglected nonlinearity of relations between the variables
(Oh et al. 2020). Third, the power of RALS-based tests is
similar to that of other single equation-based cointegration
tests when information regarding nonnormality is negligible
(Oh et al. 2020). However, it is quite difficult to determine the
underlying distribution and true density function of
nonnormal errors. Under these circumstances, RALS-based
tests do not need a specific density function or test for the
presence of a certain nonnormal type to be predetermined
(Lee et al. 2015; Oh et al. 2020). Lee et al. (2015)

Table 1 Literature review on the Turkish economy

Author(s) Period Variable(s) Methodology Results

EKC Cointegration Long-run causality Short-run

causality

Halicioglu (2009) 1960–2005 CO2, EG, EC, TR - ARDL Yes Yes EG↔CO2, TR→CO2 EG↔CO2
- Johansen Coint. EC→CO2, EC↔CO2
- Granger causality
Soytas and Sari (2009) 1960–2000 CO2, EG, EC - Toda-Yamamoto causality - Yes CO2→EC -
Mutafoglu (2012) 1987–2009 CO2, EG, FD - Johansen Coint. - Yes CO2→EG, CO2→FD -
- Granger causality
Ozturk and Acaravci 1960–2007 CO2, EG, EC, TR, - ARDL Yes Yes EG→CO2, TR→CO2 -
(2013) FD - Granger causality EC→CO2, FD→CO2
Shahbaz et al. (2013) 1970–2010 CO2, EG, EC, GI - ARDL Yes Yes EG↔CO2, EC↔CO2 EG→
- Johansen Coint. GI→CO2 CO2,
- Gregory-Hansen Coint. EC↔CO2
- Granger causality
Bölük and Mert (2015) 1961–2010 CO2, EG, RE - ARDL Yes Yes - -
Seker et al. (2015) 1974–2010 CO2, EG, EC, FD - ARDL Yes Yes EG→CO2, FD↔CO2 CO2→EC
- Hatemi-J Coint. EC→CO2,
- Granger causality
Ertugrul et al. (2016) 1971–2011 CO2, EG, EC, TR - ARDL (with structural Yes Yes EG→CO2, TR→CO2 -
breaks) EC→CO2,
- Granger causality
Gökmenoğlu and 1974–2010 CO2, EG, EC, FD - ARDL Yes Yes EC↔CO2, FD↔CO2 -
Taspinar (2016) - Toda-Yamamoto causality
Cetin et al. (2018) 1960–2013 CO2, EG, EC, TR, - ARDL Yes Yes EG→CO2, TR→CO2 -
FD - Granger causality EC→CO2, FD→CO2

Note: In the causality analyses, the relationship of the series with CO2 emissions only has been taken into account. CO2, carbon dioxide emissions; EC,
energy consumption; EG, economic growth; FD, financial development; GI, globalisation index; RE, renewable energy; TR, trade openness
Environ Sci Pollut Res (2021) 28:32554–32563
demonstrated the power increase in RALS-based tests in dif-
ferent nonnormal distribution types.
The rest of this article is organised as follows. The
“Literature review” section is the literature review, which ex-
amines the relationship between environmental pollution and
several economic factors, such as economic growth, energy
consumption, financial development and trade openness, in
the Turkish economy. The “Data” section explains the data.
The “Econometric methodology” section presents our econo-
metric methodology. The “Empirical results” section dis-
cusses the empirical findings, and the “Conclusion and policy
implications” section offers our conclusion and policy
recommendations.
Literature review
The Turkish economy is the nineteenth largest in the world
with a gross domestic product (GDP) of approximately $750
billion in 2019. In 2013, Turkey reached its highest GDP
figures attaining about $950 billion, but over the next 5 to 6
years, it could not maintain the same economic performance.
During this period Turkey also faced a serious problem called
the middle-income trap. This dilemma related to growth and
its environmental effects is an important area of research for
academics and policymakers, leading to the production of
many studies. Table 1 gives a detailed summary of the related
studies.
Halicioglu (2009) examines the period 1960–2005 in
Turkey using ARDL bounds, Johansen and Juselius
cointegration and Granger causality methods. He argues that
the income level is the most significant variable in explaining
CO2 emissions in Turkey, followed by energy consumption
and foreign trade. Soytas and Sari (2009) analyse the period
1960–2000 in Turkey using Toda-Yamamoto causality
analysis and find a unidirectional causal relationship from
CO2 emissions to energy consumption. They focus on the
negative impacts of energy supplies based on fossil fuels in
the struggle over the production of greenhouse gases.
Mutafoglu (2012) investigates the period 1987–2009 in
Turkey using Granger causality analysis and finds a
unidirectional causal relationship from CO2 emissions to
economic growth and FDI. Ozturk and Acaravci (2013) re-
search the period 1960–2007 in Turkey using the ARDL
bounds test and Granger causality methods. They conclude
that energy consumption and trade openness have positive
and statistically significant effects on CO 2 emissions,
whereas financial development has no significant effect on
CO2 emissions in the long run. Shahbaz et al. (2013) review
the period 1970–2010 in Turkey using ARDL bounds,
Johansen and Juselius cointegration, Gregory and Hansen
cointegration and Granger causality test procedures. Their
results show that in Turkey, economic growth and energy
32557
consumption have positive and statistically significant
effects on CO 2 emissions, whereas globalisation has a
negative and statistically significant effect on CO 2
emissions. In addition, bidirectional causal relationships
exist between economic growth and CO2 emissions and
between energy consumption and CO2 emissions. Moreover,
a unidirectional causal relationship exists from the
globalisation index to CO2 emissions. Bölük and Mert
(2015) examine the effect of electricity production from re-
newable energy sources on CO2 emissions in Turkey using an
ARDL bounds test for the period 1961–2010. The results
indicate that economic growth has an increasing effect on
CO2 emissions, whereas renewable energy production has a
decreasing effect on CO2 emissions in Turkey. Seker et al.
(2015) analyse the period 1974–2010 in Turkey using the
ARDL bounds test, Hatemi-J cointegration and Granger
causality analyses. They focus on the effects of FDI on
environmental pollution. Accordingly, they find that in
Turkey FDI has a positive and smaller effect on CO 2
emissions in the long run. However, economic growth and
energy consumption have a positive and larger effect on
CO2 emissions. Ertugrul et al. (2016) investigate the top ten
emitters of CO2 among the developing countries (including
Turkey) using the ARDL bounds test (with structural breaks)
and Granger causality analysis for the period 1971–2011.
Their findings show that in Turkey, economic growth, energy
consumption and trade openness have positive and statistical-
ly significant effects on CO2 emissions. Moreover, causality
test results reveal a unidirectional causal relationship from
economic growth, energy consumption and trade openness
to CO2 emissions. Gökmenoğlu and Taspinar (2016) research
the period 1974–2010 in Turkey using ARDL bounds and
Toda-Yamamoto causality tests. Their long-run findings re-
veal that in Turkey, FDI and energy consumption have
increasing effects on CO2 emissions, whereas economic
growth has a decreasing effect on CO 2 emissions. In
addition, a bidirectional causal relationship exists between
CO2 emissions and FDI and between CO2 emissions and
energy consumption. Finally, Cetin et al. (2018) analyse the
period 1960–2013 in Turkey using ARDL bounds and
Granger causality tests, concluding that economic growth, en-
ergy consumption, trade openness and financial development
parameters determine the pollutant emissions in Turkey, re-
spectively. They also find a unidirectional causal relationship
from economic growth, energy consumption, trade openness
and financial development to CO2 emissions in the long run.
Data
This study analyses the long-run effects of economic growth,
energy consumption and financial development on CO2 emis-
sions in Turkey for the period 1965–2018. Following
32558 Environ Sci Pollut Res (2021) 28:32554–32563

Gökmenoğlu and Taspinar (2016), we construct the model for steps. The first step was to determine the integration
the study as follows: order of the variables. The second step was to estimate
the ordinary least squares (OLS) regression equation if
lnCO2;t ¼ a0 þ β1 lnEGt þ β2 lnECt þ β 3 lnFDt þ ϑt ð1Þ
the variables were I(1):
where lnCO2 is the carbon dioxide emissions per capita, yt ¼ βzt þ ut ð2Þ
which represents environmental pollution; lnEGt is the real
gross domestic product (GDP) per capita, which proxies for Then, we obtained the b ut residuals and conducted the ADF
economic growth; lnECt is energy consumption per capita, unit root test with related residuals:
which represents the demand for energy and lnFDt is domestic
k
credit to the private sector as a share of GDP, to proxy for the ut ¼ α 0 þ α 1 b
Δb ut−1 þ ∑ αiþ1 Δb
ut−1 þ et ð3Þ
financial development level. a0 is the constant and ϑt is the i¼1

error term. β1, β2 and β3 are the elasticities of economic

Higher moments of residuals include information on the
growth, energy consumption and financial development pa-
nature of nonnormal residuals if the errors in the test equation
rameters for CO2 emissions, respectively. Real GDP per
have a nonnormal distribution. The RALS procedure
capita and the ratio of domestic credit to the private sector
employed by Im and Schmidt (2008) can use the additional
were obtained from the World Development Indicator
high-moment information found in nonnormal errors in linear
(WDI) database; the data on CO2 emissions and energy con-
model frameworks. It is possible to obtain more powerful
sumption were collected from the BP Statistical Review of
results using the RALS procedure when the error term follows
World Energy database. All the series included in the study
a nonnormal distribution. Lee et al. (2015) augmented the EG
take their logarithms. The descriptive statistics of the variables
cointegration test by using the RALS procedure. The RALS
are presented in Table 2.
cointegration test uses the second and third moments of the
Demand for environmental quality is not a priority for con-
residuals of classical cointegration tests to create a new term.
sumers or investors in Turkey, whose economy is import-
To apply the RALS procedure, Eq. (3) was extended by the
dependent and financial markets are substantially shaped by
following term:
foreign capital flows. This means that economic growth is
usually preferred to environmental degradation in these coun- b et D
b t ¼ hðbet Þ−K−b
w bt; t ¼ 1; 2; 3; …; T ;
tries. Accordingly, this study anticipates that economic
growth, energy consumption and financial development cause where bet shows the residuals obtained from Eq. (3) and hðbet Þ
environmental pollution. In other words, the following coef- h i0
ficients must be present in the empirical analyses: β_1>0, b ¼ 1 ∑T hðbet Þ, D
¼ be2t ; be3t , K b t ¼ 1 ∑T h0 ðbet Þ. Following
T i¼1 T i¼1
β_2>0 and β_3>0. Meng et al. (2017), the RALS term is defined as below:
 0
2 3
b
wt ¼ b
e t −m ;
2 tb
e −m 3 −3m b
e
2 t ð4Þ
Econometric methodology

This study starts by applying the augmented Dickey-Fuller where m j ¼ T −1 ∑Ti¼1betj . The RALS cointegration regression
(ADF) and residual augmented least squares ADF (RALS- is obtained by adding w b t to Eq. (3):
ADF) (Im et al. 2014) unit root tests. The presence of the k 0

cointegration relationship between variables was analysed by ut ¼ α 1 b

Δb ut−1 þ ∑ αiþ1 Δb b t γ þ vt
ut−1 þ w ð5Þ
i¼1
using Engle and Granger (EG) and residual augmented least
squares EG (RALS-EG) (Lee et al. 2015) cointegration tests In Eq. (5), the null hypothesis (α1 = 0) is tested using stan-
after the stationarity analysis. The long-run coefficients were dard t-statistics. Under the null hypothesis of no cointegration,
estimated using the dynamic ordinary least squares (DOLS) the asymptotic distribution of the test statistic is given by Eq.
method. The bootstrap-based causality test suggested by (6):
Hacker and Hatemi-J (2012) was conducted during the last pffiffiffiffiffiffiffiffiffiffi
stage of the analysis. t * →ρ:t þ 1−ρ2 :Z ð6Þ

Cointegration test
The EG cointegration test developed by Engle and
Granger (1987) is based on the t-statistics and residuals.
In this study, the EG methodology was applied in two
where t and t∗ indicate EG and RALS-EG test statistics, re-
spectively. Z represents the standard normal random variable;
ρ is the long-run correlation between residuals (et) of Eq. (3)
and residuals (vt) of Eq. (5).
Environ Sci Pollut Res (2021) 28:32554–32563 32559

Table 2 Descriptive statistics

Variables Mean Median Maximum Minimum Std. Dev. Jarque-Bera (p-value)

lnCO2 0.854 0.937 1.567 − 0.209 0.483 0.217

lnEG 8.857 8.829 9.620 8.177 0.393 0.268
lnEC − 0.186 − 0.103 0.633 − 1.379 0.550 0.225
lnFD 3.121 2.898 4.261 2.609 0.482 0.000

Causality test in the VAR(j) model, N is the number of variables, T is the

Toda and Yamamoto (1995) developed an alternative test to
Granger (1969), which allows series to be used in the analysis
with a different integration order of variables. At the same
time, Hacker and Hatemi-J (2006) investigate the size proper-
ties of the MWALD test, developed by Toda and Yamamoto
(1995), and found that this test performs poorly with small
samples. Hacker and Hatemi-J (2006) suggest using a boot-
strap distribution to decrease the size distortions. Monte Carlo
simulation results indicated that the MWALD test, which is
based on a bootstrap distribution, has much smaller size dis-
tortions than an asymptotic distribution. The Hacker and
Hatemi-J (2006) test assumes that the lag length is known a
priori, and therefore, the lag structure must be selected before
tests for causality are performed. Hacker and Hatemi-J (2012)
state that data-driven preselection of the lag length should be
considered and suggest determining the appropriate lag length
endogenously in the bootstrap causality test.
To investigate the relationship between the variables, we
use a leveraged bootstrap test suggested by Hacker and
Hatemi-J (2012), who claim that this technique is more reli-
able than other causality methods, especially if the sample is
small. Hacker and Hatemi-J (2012) use the following vector
autoregressive model VAR(p) in Eq. (7) for this purpose:
xt ¼ c þ A1 xt−1 þ … þ Ap xt−p þ εt ð7Þ
sample size and ln is the natural logarithm (Hatemi-J and
Uddin 2014).
Empirical results
Unit root test results
Table 3 shows the ADF and RALS-ADF unit root test results
for CO2 emissions, economic growth, energy consumption
and financial development. ADF and RALS-ADF unit root
test results fail to reject the null hypothesis at their levels in
all series. This means that all series are not stationary and that
shocks have permanent effects. However, all the series be-
come stationary at their first differences (Δ). These results
enable the investigation of the cointegration relationship be-
tween the series.
Cointegration test results
Table 4 presents the EG and RALS-EG cointegration test
results. In the EG cointegration test, the test statistic (− 5.48)
is smaller than the 1% critical value, so the null hypothesis is
rejected. In the RALS-EG cointegration test, the test statistic

where xt, c and εt are n × 1 dimensional vectors and Ai is an Table 3 Unit root test results
n × n dimensional parameter matrix, in which i ≥ 1. Variables ADF RALS-ADF ρ2
All the causality tests in the literature are based on the
selected lag length. Therefore, determining the optimum lag lnCO2 − 1.981 (6) − 1.931(6) 0.995
length is very important because it can change the estimation lnEG 1.056 (4) 1.056 (4) 0.997
results. Hatemi-J (2003, 2008) offer an alternative formulation lnEC − 1.921 (6) − 1.936 (6) 0.967
that is a combination of the Schwarz and Hannan-Quinn in- lnFD − 0.219 (1) 0.393 (0) 0.916
formation criteria. This study uses the Hatemi-J information Δ lnCO2 − 7.812 (0)* − 7.795 (0)* 0.979
criterion (HJC) to determine the optimal lag length, which is Δ lnEG − 4.803 (0)* − 4.447 (3)* 0.857
calculated when the HJC in Equation (8) is minimised. Δ lnEC − 3.224 (5)** − 3.201 (5)** 0.962
    Δ lnFD − 5.480 (0)* − 5.429 (0)* 0.967
b n2 lnT þ 2n2 lnðlnT Þ
HJC ¼ ln detΩ j þ j ; j ¼ 0; 1; …; p
2T Note: (1) *, ** and *** represent the significance in 1%, 5% and 10%,
ð8Þ respectively. (2) The numbers in parentheses show the optimum lag
length determined using recursive t-statistics. (3) 1%, 5% and 10% critical
values for ADF test are − 3.58, − 2.93 and − 2.60, respectively. (4) 1%,
b j represents the determinant of the estimated max-
where detΩ 5% and 10% critical values for RALS-ADF test are − 3.75, − 3.30 and −
imum likelihood variance-covariance matrix of the error term 3.05, respectively
32560 Environ Sci Pollut Res (2021) 28:32554–32563

(− 4.70) is smaller than the 5% critical value (− 4.19), so the Table 5 Long-run coefficient results
null hypothesis is rejected. In conclusion, the EG and RALS- Variables Depended variable: lnCO2
EG cointegration tests both confirm the existence of a
cointegration relationship between CO2 emissions and eco- Coefficient Standard error t-statistic Prob.
nomic growth, energy consumption and financial
lnEG − 0.268*** 0.134 − 1.993 (0.054)
development.
lnEC 1.050* 0.089 11.782 (0.000)
lnFD 0.046*** 0.026 1.757 (0.087)
Long-run coefficient estimation results Constant 3.280* 1.130 2.903 (0.006)
R2 0.996 Adjusted R2 0.995
In this study, the long-run coefficients are estimated with the
DOLS method suggested by Stock and Watson (1993). The Note: *, ** and *** represent the significance in 1%, 5% and 10%,
DOLS method has strong and consistent estimates in the pres- respectively
ence of autocorrelation and endogeneity problems. Table 5
shows the long-run coefficient results.
with the results of Gökmenoğlu and Taspinar (2016), which
In Table 5, the variables for energy consumption (lnEC)
might be due to an increase in environmental awareness in
and financial development (lnFD) have positive and statisti-
Turkish society. Especially over the past decade, increases in
cally significant coefficients in line with the hypotheses ex-
the investment for renewable energy sources, such as solar
pected for Turkey. In particular, energy consumption is the
and wind energy, contribute to the formation of public aware-
main contributor to CO2 emissions in Turkey. Under these
ness and a reduction in environmental degradation
circumstances, a 1% increase in energy consumption per
(Gökmenoğlu and Taspinar 2016).
capita causes approximately an increase in CO2 emissions
(lnCO2) of 1.05% in the long run, which demonstrates that
Turkey has not attained the desired level of renewable energy
Bootstrap causality test results
consumption. This result is consistent with the studies of
Table 6 lists the bootstrap causality test results. The null hy-
Halicioglu (2009), Ozturk and Acaravci (2013) and Cetin
pothesis is rejected if the MWALD test statistics are larger
et al. (2018). It is thought that deforestation and the use of
than the critical value obtained by the bootstrap method, and
low-quality coal as fuel, both of which are extensively used
a causal relationship is found between the series. The findings
in line with various requirements, increase pollutant emis-
in Table 6 indicate unidirectional causality from financial de-
sions. However, our results indicate that financial develop-
velopment (lnFD) to CO2 emissions (lnCO2), economic
ment has a positive and relatively small effect on CO2
growth (lnEG) and energy consumption (lnEC).
emissions in Turkey, which is consistent with the studies of
Although the primary purpose of this study is not to deter-
Seker et al. (2015) and Mutafoglu (2012). Thus, a 1% increase
mine the causality among financial development, economic
in the ratio of domestic credit to the private sector (lnFD)
growth and other variables, the direction of causality suggests
causes an increase in CO2 emissions (lnCO2) of 0.04% in
that financial development supports economic growth in
the long run, which confirms the pollution haven hypothesis
Turkey during the period of analysis. Adequately functioning
in Turkey. Finally, the coefficient obtained for economic
financial markets and financial depth can secure a flow of
growth (lnEG) is − 0.26, and this is not consistent with our
savings, increase credit availability for investors, lower the
expectations. Accordingly, a 1% increase in the real GDP per
cost of borrowing and reduce asymmetric information, ad-
capita (lnEG) causes a decrease in CO2 emissions of approx-
verse selection and moral hazard. All these factors stimulate
imately 0.26% in the long run. This negative relationship be-
economic growth (Singh 2008; Montiel 2011). However, fi-
tween economic growth and pollutant emissions is consistent
nancial development not only causes output growth but, at the
same time, drives domestic consumption by easing access to
Table 4 Cointegration test results consumer credit. Increased domestic consumption stimulates
production, which creates a higher demand for energy use and
Methods k Test statistics ρ2
higher CO2 emissions.
EG 0 − 5.485* -
RALS-EG 0 − 4.706** 0.981
Conclusion and policy implications
Note: (1) *, ** and *** represent the significance in 1%, 5% and 10%,
respectively. (2) k shows the optimum lag length determined using recur-
sive t-statistics. (3) 1%, 5% and 10% critical values for EG test are − 5.02,
The Turkish economy cannot adopt its own independent de-
− 4.32 and − 3.98, respectively. (4) 1%, 5% and 10% critical values for velopment policy and follows the world development trends.
RALS-EG test are − 4.80, − 4.19 and − 3.88, respectively In the 1960s and 1970s, it implemented import substitution
Environ Sci Pollut Res (2021) 28:32554–32563 32561

Table 6 Bootstrap causality test results (Hacker and Hatemi-J 2012) and its environmental effects are important areas for further
Var (p) MWALD Bootstrap critical values research by researchers and policymakers.
This study investigates the long-run effects of economic
%1 %5 %10 growth, energy consumption and financial development on
CO2 emissions in Turkey using annual time series data for
lnGDP → lnCO2 1 1.064 7.344 4.177 2.879
the period 1965–2018. In this study, first, we conducted
lnCO2 → lnGDP 1 0.571 7.327 4.188 2.862
ADF and RALS-ADF unit root tests leading to the conclusion
lnEC → lnCO2 1 1.568 7.187 4.088 2.886
that all the series are stationary at their first difference. Second,
lnCO2 → lnEC 1 0.713 7.373 4.094 2.826
we conducted EG and RALS-EG cointegration tests which
lnFD → lnCO2 1 3.183*** 7.517 4.220 2.912
showed a long-run relationship between the series. Third, we
lnCO2 → lnFD 1 0.003 8.173 4.385 2.914 performed long-run coefficient estimations using the DOLS
lnFD → lnEC 1 5.897** 7.374 4.104 2.851 method. The results show that energy consumption and finan-
lnEC → lnFD 1 0.006 7.636 4.238 2.885 cial development in Turkey have an increasing effect on en-
lnGDP→ lnEC 1 1.692 7.609 4.246 2.909 vironmental pollution, whereas economic growth has a de-
lnEC → lnGDP 1 0.015 7.244 3.959 2.769 creasing effect on environmental pollution in the long run.
lnGDP → lnFD 1 0.765 7.576 4.262 2.961 Finally, we applied the bootstrap causality analysis developed
lnFD → lnGDP 1 6.049** 7.418 4.140 2.829 by Hacker and Hatemi-J (2012) to determine the direction of
the causal relationship between the series, finding unidirec-
Note: (1) *, **, and *** represent the significance in %1, %5, and %10,
respectively. (2) The optimal lag length is determined by HJC informa- tional causality from financial development to CO2 emissions,
tion criteria. (3) Bootstrap critical values are obtained by 10.000 economic growth and energy consumption.
replications The results of this study lead to the following policy recom-
mendations. The Turkish financial system should implement a
development policies along with development planning. selective credit policy. Investment projects should prioritise
However, after the oil shocks of the 1970s, these policies firms which use technologies that are environmentally friendly
failed because Turkey could not obtain foreign debt to finance and have low carbon emissions. Turkish credit policies should
its external deficit. Therefore, in 1980, Turkey shifted its de- aim not only to prioritise economic growth and profitability but
velopment strategy to adopt a policy of export promotion with also to drive investment in projects with low carbon emissions.
the goal of following in the footsteps of East Asian countries. We found that the biggest contribution to environmental pollu-
However, Asian countries such as South Korea had started to tion in Turkey comes from energy consumption because its
implement export promotion policies in the 1960s two de- economy has not yet reached the desired level of energy con-
cades earlier than Turkey. Thus, the implementation of sumption from renewable sources. The continuing use of low-
outward-looking policies by Turkey was considerably delayed quality coal as fuel and the problem of deforestation, which are
by comparison. During this period, its major exports were extensive due to various requirements, are the most important
mainly labour-intensive industrial products and agriculture reasons for the increase in CO2 emissions. The number of ther-
goods. Turkey’s inability to diversify exports and increase mal power plants must be reduced and replaced by plants which
the competitiveness of tradable goods on international mar- depend on renewable energy sources. Industries and firms
kets was the main challenges. which are highly polluting must be strictly monitored and fined.
In the 1990s and 2000s, Turkey began a period of financial In conclusion, increasing the Turkish economy’s investment in
liberalisation that created further economic problems as it led renewable energy sources will be an effective policy tool in the
to economic crises in 1994 and 2001. None of the develop- fight against environmental pollution.
ment alternatives implemented over the past 70 years has en-
abled Turkey to complete its industrialisation process success- Author contributions Murat Doğanlar: conceptualisation, methodology,
fully. The legacy of these unsuccessful industrialisation poli- writing—original draft, analysis. Faruk Mike: conceptualisation, method-
ology, writing—review and editing, analysis. Oktay Kızılkaya: concep-
cies is environmental pollution.
tualisation, methodology, writing—original draft, analysis. Selin Karlılar:
Recent economic growth in Turkey shows that it has not conceptualisation, methodology, writing—original draft, analysis.
been able to achieve the target growth rate projected and strug-
gles with the middle-income trap. Sustainable economic growth Data Availability The datasets generated and/or analysed during the cur-
is an indispensable target for the Turkish economy which has rent study are available in the World Development Indicator (WDI) and
the BP Statistical Review of World Energy databases. Web links are as
an import-based export structure and is largely dependent on
follows: (1) https://databank.worldbank.org/source/world-development-
foreign capital flows. Turkey’s effort to maintain its position indicators and (2) https://www.bp.com/en/global/corporate/energy-
among the G-20 countries and its goal of membership in the economics/statistical-review-of-world-energy.html. The datasets used
European Union places great pressure on policymakers to attain and/or analysed during the current study are also available from the cor-
responding author on reasonable request.
sustainable economic growth. This dilemma related to growth
32562
Declarations
Ethics approval and consent to participate Not applicable.
Consent for publication Not applicable.
Competing interest The authors declare no competing interest.
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