This section encompasses three parts of this study, beginning with the conceptual literature, followed by a review of the theoretical literature, and lastly a review of the empirical literature.
2.2. Empirical Literature
Extant studies on the relationship between environmental quality, financial development, and economic growth have yielded diverse results. Notable among them are [
31], who investigated the impact of financial development on CO
2 emissions and found that financial development efficiency and stock trading volume have a positive effect on CO
2 emissions. They further determined that the financial development and market value of listed companies have a negative impact on CO
2 emissions. Similarly, ref. [
19] explored the influence of economic and financial development on carbon emissions and reported that financial development mitigates long-term emission rates. Further research by [
6] analyzed the nexus between financial development and environmental quality and investigated the technological effect of financial development on environmental quality. Their findings indicate that financial development is a positive driver of environmental quality and is negatively correlated with CO
2 emissions and population increases. Ref. [
18] examined the relationship between energy consumption, carbon emissions, economic growth, trade openness, and urbanization using panel cointegration and the Granger causality test. The empirical results demonstrate a significant connection between energy consumption and carbon emissions, GDP, and trade openness. Further results show a short-run unidirectional relationship between energy consumption and trade openness, urbanization and carbon emissions, and from GDP to energy consumption. The study by [
46] analyzed the relationship between carbon emissions and economic growth in Algeria using the ARDL approach. Their findings support the Environmental Kuznets Curve (EKC) hypothesis in Algeria, with a notably high GDP per capita threshold. This suggests that economic growth and energy consumption in Algeria will continue to increase until this threshold is reached. In addition, ref. [
20] investigated the long-run causal relationship between energy consumption, CO
2 emissions, and economic growth, establishing a bi-directional relationship between economic growth and carbon emissions. Furthermore, ref. [
41] explored the nexus between carbon emissions, economic growth, and financial development in GCC countries and found unidirectional causal relationships among CO
2 emissions, financial development, GDP, and energy use in all GCC countries, except for the UAE. Similarly, ref. [
33] examined the impact of income, energy consumption, and population growth on CO
2 emissions by employing ARDL, and the results revealed that income and energy consumption increase CO
2 emissions and supported the EKC hypothesis in India, China, and Indonesia. Ref. [
44] examined the ecological consequences of CO
2 emissions on economic growth, FDI, and financial development in selected Asian countries by employing DOLS and FMOLS techniques, and the findings reveal that FDI and financial development are statistically significant and have a long-run relationship with CO
2, which suggests its alignment with EKC in the selected countries. Ref. [
35] analyzed the nexus between financial development, CO
2 emissions, and economic growth for sub-Saharan African countries using the causality test and pooled mean group PMG and ARDL techniques with dynamic GMM techniques. The empirical results reveal that FD reduced CO
2 emissions in the long run, supporting the EKC hypothesis with a bi-directional causality relationship. Ref. [
32] investigated the impact of energy consumption, globalization, financial development, and urbanization on carbon emissions. The results indicate that financial development and energy consumption contribute to emission rates, support the Environmental Kuznets Curve (EKC), and a bi-directional causality relationship exists amongst the variables, except for globalization and urbanization, which revealed a unidirectional relationship with carbon emissions. Ref. [
34] examined the dynamic association between financial development, globalization, and carbon emissions in Asian countries using updated, fully modified methods subjected to EKC frameworks. The study found that financial development and globalization reduced CO
2 emissions, whereas economic growth and energy density increased CO
2 emissions. Ref. [
16] explored the influence of trade openness, economic growth, financial development, and non-renewable energy utilization on CO
2 emissions in Pakistan. The findings revealed that financial development, non-renewable energy, and trade openness deteriorate environmental quality with a unidirectional causality relationship. Ref. [
2] investigated the synergistic emission reduction effects of the emission trading system (EST) on air pollution and carbon emissions. The findings indicate that the implementation of ETS reduces both carbon emissions and air pollution. Ref. [
8] examined the causal relationship between globalization, renewable energy consumption, financial development, and CO
2 emissions, as well as its implications for sustainable development, by employing PFMOLS and PVECM. The results demonstrate a unidirectional long-run causality from CO
2 to financial development and globalization in the urban population, with only renewable energy consumption significantly negatively related to CO
2 emissions.
Furthermore, ref. [
47] analyzed the dynamic association between financial development, natural resources, globalization, non-renewable and renewable energy consumption of greenhouse gas emissions, and economic growth in Arctic countries. The findings revealed that financial development and renewable energy consumption increase environmental damage, which undermines environmental quality, while globalization, economic growth, and non-renewable energy increase environmental degradation. Additional findings revealed that financial development, natural resources, globalization, and non-renewable and renewable energy boost economic growth. Similarly, ref. [
17] analyzed the impact of financial development, FDI, economic growth, electricity consumption, and trade openness on environmental quality using a panel causality approach. The findings revealed that an increase in FDI, trade openness, and financial development improves environmental quality. Further findings revealed that economic growth and electricity consumption degrade environmental quality. A bi-directional causality was found amongst economic growth, FDI, financial development, electricity consumption, and trade openness with environmental quality. In addition, ref. [
48] examined the relationship between financial development, economic growth, and environmental quality by employing PVAR in a Generalized Method of Moment (GMM). The results revealed that financial development had a negative impact on carbon emissions. Moreover, ref. [
49] examined both the direct and indirect effects of financial development on environmental pollution and EKC using a GMM of data from 88 developing countries. The results indicated that financial development reduces the adverse effects of income, trade openness, and FDI on pollution emissions with an indirect association. Ref. [
50] investigated the effect of financial development and economic growth on the ecological footprint by including non-renewable energy consumption and trade openness as additional determinants using the Westerlund and Edgerton panel LM bootstrap. The results revealed that financial development, economic growth, and non-renewable energy consumption negatively affect environmental quality. Furthermore, ref. [
45] investigated the dynamic interaction between financial development, economic growth, and globalization with carbon emissions in Vietnam using the quantile-on-quartile regression. A positive link between globalization and carbon emissions, financial development and carbon emissions, and a negative link between financial development and carbon emissions were found. Ref. [
40] analyzed the interactions amongst economic growth, energy consumption, carbon emissions, and environmental protection investment. The results revealed that energy consumption rises with economic growth, but energy consumption and economic growth increase carbon emissions simultaneously. Ref. [
51] investigated the potentiality of economic growth, technological innovation, and renewable energy use on environmental sustainability using the Dynamic Ordinary Least Square method. Findings revealed that economic growth increases CO
2 emissions and fossil fuel emissions, while both renewable energy and technological innovation reduce carbon emissions. Additionally, ref. [
52] examined the causal relationship between energy consumption and economic growth, and the results indicated a bi-directional relationship between energy consumption and economic growth and development. Ref. [
53] empirically investigated the effect of agricultural development on carbon emissions in Ghana utilizing regression analysis and variance decomposition. The results demonstrated a U-shaped relationship between agricultural development and carbon emissions. Furthermore, ref. [
3] investigated stringent environmental policies and their impact on carbon emissions using a quartile fixed-effect panel data approach. The findings indicated that an increase in policy stringency has a negative effect on emissions, but environmental stringency leads to lower carbon emissions. Ref. [
5] explored the impact of economic policy uncertainty (EPU) on carbon emissions and proposed that countries should implement innovation and other environmentally friendly technologies, such as renewable energy, stringent tax policies to discourage non-renewable energy, and zero tax to encourage the usage of clean energy. Ref. [
4] examined the impact of population growth, energy consumption, ecological footprint, and natural resources on carbon emissions using the Generalized Method of Moment (GMM), Generalized Linear Model (GLM), and Robust Least Squares (RLS). The results indicated that renewable energy and natural resources improve environmental quality in the long term, while non-renewable energy consumption and population growth are detrimental to environmental quality. Ref. [
1] explored the link between fossil fuel energy consumption, industrial value-added, and carbon emissions in G20 countries using a panel CS-ARDL technique to determine the relationship among the variables. The results indicated that FDI, trade openness, government expenditure, research and development, and ICT are detrimental to carbon emission rates in G20 countries. Moreover, ref. [
27] examined the impact of FDI, technological innovation, energy use, urbanization and financial development on carbon emissions among G8 nations. While a unidirectional causal relationship between FDI and carbon emissions was found, a long-run bi-directional causal relationship was found amongst trade openness, carbon emissions, financial development, economic growth, urbanization, and energy use. Ref. [
54] assessed the effectiveness of policies in seven emerging countries’ panel data using the Augmented Mean Group (AMG). The results demonstrated an inverted U-shaped relationship between carbon emissions and environmental policy stringency. This implies that policy stringencies require time before becoming effective. They also found an unconditional causality between the two variables. Additionally, ref. [
25] investigated the effectiveness of environmental taxes and environmentally stringent policies in carbon reduction within 20 European nations using a panel co-integration test, and the findings indicated that the higher the environmental stringency policy and the environmental taxes, the higher the carbon emission reduction.
Furthermore, ref. [
30] empirically examined the association between inflation, GDP growth, and environmental stability utilizing the autoregressive distributed lag (ARDL) approach. The results indicated that the positive and negative shocks of inflation instability have distinct effects on environmental quality in both the short and long term. Inflation and GDP exhibited differential impacts on pollution emissions. Ref. [
7] investigated the relationship between globalization and carbon emissions in India employing the Panel ARDL approach. The findings demonstrated that the acceleration of globalization and energy consumption resulted in increased carbon emissions. The study further revealed that globalization deteriorates environmental quality and accelerates economic and financial development in the long term. Additionally, ref. [
37] explored the relationship between per capita income and environmental degradation using longitudinal data to estimate the Environmental Kuznets Curve. The results indicated that increasing levels of income per capita are associated with increased pollution and reduced environmental quality. Moreover, ref. [
55] evaluated 22 independent variables utilizing two approaches, Bayesian Model Averaging and Weighted Averaging Least Square, with the findings revealing a positive ecological footprint. Ref. [
38] analyzed the effect of economic growth on the performance of green logistics using the Panel GMM Two-Stage Least Square. The findings demonstrated that green logistics performance enhances the economic growth of OBRI, Central Asia, and MENA economies. Their results further indicated that while it exacerbates environmental pollution in MENA, OBRI, and Central Asia, it significantly improves environmental quality in Europe, the East, and Southeast Asian regions. Ref. [
56] examined the interaction between renewable energy consumption, international trade, and environmental quality in Nordic countries. The study employed the dynamic common correlated effect (DCCE) and revealed that renewable energy improves environmental quality and is positively and significantly associated with international trade in the region. Ref. [
39] investigated the impact of financial development on carbon emissions using Panel ARDL-ECM, and the results demonstrated a positive short-term and long-term relationship among financial scale, economic growth, and carbon emissions. Further results indicated a relatively small impact on carbon emissions. Ref. [
57] analyzed air quality control, current air pollution, and future challenges in China, suggesting that China would continue to face more severe multiple pollutant emissions from energy consumption, electricity generation, vehicle population, etc., due to the continuing growth of its economy. The authors thus proposed a comprehensive control policy. Furthermore, ref. [
58] investigated the impact of income inequality on carbon emission per capita in China using the GMM technique, and the findings indicated that carbon emission per capita increased as the income gap expanded. Ref. [
42] examined the effect of financial development on carbon emissions for sub-Saharan African countries using GMM. The results revealed that financial development increases carbon emissions, while FDI, liquid liabilities, and domestic credit do not affect carbon emissions. Further results indicated that FDI moderates economic growth but does not reduce carbon emissions. Additionally, ref. [
28] explored energy saving and the reduction of carbon to improve and safeguard China’s environment, revealing a reduction from 3.14% to 3.27% of carbon in 2007 compared to 2006 due to energy saving and the emission reduction policy adopted by China, with its corresponding GDP growth from 2.4% to 4%. Ref. [
59] examined the dynamic impact of institutional quality on carbon emissions using the Panel GMM estimation technique. The empirical findings revealed that institutional quality reduced carbon emissions, thus improving environmental quality.
Since the economic boom in the 1970s, nations have endeavored to mitigate the adverse effects associated with environmental activities through policies aimed at maintaining an environmentally sustainable ecosystem [
21]. Extant studies in this field have long established the relationship between carbon emissions and economic growth, financial development, environmental performance, FDI, and other factors, with most studies revealing a strong correlation. A conflicting interest between environmental quality, carbon emission control, and economic growth and financial development was established [
28,
55]. Few studies have established the relationship between or among these variables based on the extent of this study’s findings. Recently, the research focus has shifted to the control and mitigation of human impacts on the environment. Specifically, the existing literature has established the relationship between carbon emissions and financial development [
39]; environmental quality and economic growth [
17,
37,
38]; carbon emission and industrialization [
39]; financial development and environmental quality [
39,
42]; environmental quality and globalization [
7,
16,
39,
47]; carbon emission and economic growth [
37,
40,
60]; and carbon emission and renewable energy [
28]. However, few studies have examined a bi-directional relationship between or among these variables. Additionally, research on carbon emission control and environmental quality is limited in the global literature. Therefore, this study contributes to the body of knowledge and expands the global literature to facilitate more accurate inferences and clarify existing conflicting findings. Other gaps identified in the literature suggest that the increase in carbon emissions is primarily attributed to weak policies and regulations surrounding the global implementation of laws related to carbon emission control [
7]. There are also concerns regarding the overly ambitious nature of many national leaders and their apparent indifference towards pollution and emission control. They prioritize economic growth and development over environmental quality and emission control [
40,
47]. Another finding by [
7] is the insufficient technology to transition from non-renewable energy consumption to renewable energy consumption, which results in high and difficult-to-control carbon emission rates, despite efforts to maintain them within acceptable limits. General findings from the review revealed that conflicting results could be country-specific factors and this could be the reasons for lingering carbon emissions control problem globally.