Financial Development, Financial Globalization, Energy Consumption, and Environmental Degradation as Long-Run Determinants of Economic Growth: Causal Dynamics, Cointegration, and Distributional Evidence from Panel Data
Abstract
Using an annual panel of 142 economies over 1993–2020, we estimate long-run elasticities between real income per capita and financial development, financial globalisation, energy consumption, and ecological pressure. Under cross-sectional dependence and slope heterogeneity, CIPS unit-root tests confirm I(1) behaviour; Westerlund bootstrap cointegration tests establish a stable long-run equilibrium; and five heterogeneous panel estimators – MG-AUG, CCE-MG, CCE-GMM, DCCE-MG, and CS-ARDL – provide cross-estimator robustness. All four elasticities are positive: energy use and ecological pressure display the largest long-run associations with income, while finance and globalisation exhibit smaller positive elasticities once global common shocks are controlled for. Method-of-moments quantile regression reveals that finance and globalisation effects are stronger at lower income quantiles and attenuate upward, while energy remains positive throughout the distribution. Dumitrescu–Hurlin (2012) causality tests provide evidence of feedback linkages between GDP per capita and the four drivers, with the strongest bidirectional evidence for ecological pressure and weaker or marginal reverse-causality evidence for finance, energy, and financial globalisation. These results add directional information that cointegration tests alone cannot provide. Policy implications emphasise energy decarbonisation, cautious finance-led growth claims, and directing global capital toward sustainable investment.