Assessment of financial development on environmental degradation in KSA: how technology effect?

The discourse on the impact of financial development and its effects on environmental quality has been an important research area in the last few decades. The objective of this research attempts to test the technology effect hypothesis on environmental mitigation in the case of Saudi Arabia (KSA) over the period 1970-2016 and the STIRPAT (Stochastic Impacts by Regression on Population, Affluence, and Technology) with the Autoregressive Distributed Lag (ARDL) model used for empirical inquest. Unlike others, we insert additional variables such as technology, human capital, and the technology effects of financial development into the carbon dioxide emission model. We used the Ng-Perron unit root test to examine the stationary properties of the variables. Similarly, to examine the presence of the cointegration relationship between carbon dioxide emissions and its determinants, the Bound cointegration with multiple structural breaks approach is applied. First, The empirical findings show that financial development and technology have a negative and significant impact on environmental degradation. Second, the technology effects of financial development have an unfortunate effect on environmental mitigation. Finally, lower environmental mitigation is associated with a deepening in total population and affluence. Moreover, findings from the pairwise Granger causality test point that there is no causality running from both financial development and technology to the effect of technology among KSA. On the opposite, we looked at economic growth Granger, cause environmental quality. In addition, a unidirectional causality was seen running from environmental quality to financial development. Similarly, the relationship between affluence and financial development in KSA is unidirectional. Thus, various policy implications should be proposed to policymakers as enhancing the expansion of technology, especially in the industrial sector by incorporating renewable energy consumption to upgrade environmental quality.