Financial development and environmental quality: Does the financial environmental Kuznets Curve Prevail in Australia?

Financial development and environmental quality: Does the financial environmental Kuznets Curve Prevail in Australia?

It is crucial to evaluate the link between financial development and environmental quality in order to meet the environmental sustainability goals. Therefore, this scholarly work seeks to validate the of an inverted U-shaped relationship between financial development and environmental quality in Australia, which modifies the conventional theory of the Environmental Kuznets Curve. For the purposes of empirical analysis, we utilized the Autoregressive Distributed Lag bound test over the period from 1980 to 2021 for empirical investigation. Our findings confirm the existence of a Financial Environmental Kuznets Curve (FEKC) in the long-run, while the short-run results do not support its establishment. This means that achieving a financial development level of 0.0458 could help attain the environmental wellbeing in Australia. Similarly, the estimation outcomes affirm that the conventional Environmental Kuznets Curve exists in the long-run but not in the short-run. Our results also indicate that energy usage negatively impacts environmental quality, while foreign direct investments support the pollution halo effect in the long-run but do not exhibit this effect in the short-run. The roles of urbanization and trade openness are positive in enhancing quality of environment in the short-run. However, the effect of the carbon tax on determining environmental quality in Australia is deemed insignificant. In conclusion, this study offers vital policy recommendations to help achieve the Australian government's commitment to climate change.