Financial development and environmental quality in UAE: Cointegration with structural breaks

Abstract

This study extends the recent work of Shahbaz et al. (2014) by implementing recent unit root tests with multiple structural breaks and regime-switching cointegration techniques considering for one and two unknown regime shifts to investigate the relationship between carbon dioxide emissions, electricity consumption, economic growth, financial development, trade openness and urbanization for the UAE over the period spanning from 1975 to 2011. Our results confirm the existence of Environmental Kuznets Curve (EKC). Moreover, we find an inverted U-shaped relationship between financial development and CO2 emissions. We also find that electricity consumption, urbanization and trade openness contribute to improve environmental quality.