Financial development and sectoral CO emissions in Malaysia.

The paper examines the impacts of financial development on sectoral carbon emissions (CO) for environmental quality in Malaysia. Since the financial sector is considered as one of the sectors that will contribute to Malaysian economy to become a developed country by 2020, we utilize a cointegration method to investigate how financial development affects sectoral CO emissions. The long-run results reveal that financial development increases CO emissions from the transportation and oil and gas sector and reduces CO emissions from manufacturing and construction sectors. However, the elasticity of financial development is not significant in explaining CO emissions from the agricultural sector. The results for short-run elasticities were also consistent with the long-run results. We conclude that generally, financial development increases CO emissions and reduces environmental quality in Malaysia.