Environmental Assessment of the Effect of CO2 Emissions on Economic Development in Iran

Abstract

Financial development can significantly contribute to alleviating environmental pollution by providing access to modern technologies. However, it can also exacerbate pollution by increasing production activities. Since CO₂ emissions are the primary driver of climate change, studying the factors affecting these emissions is crucial. This study aims to explore the impact of financial development, gross domestic product (GDP), and energy use on CO₂ emissions in Iran's agricultural sector from an environmental economics perspective. The analysis of the financial index's impact on CO2 emissions is conducted using time-series data from Iran for the period 1991–2022, based on an autoregressive distributed lag (ARDL) model. The results show an inverse relationship between financial development and CO₂ emissions, indicating that a 1 percent increase in financial development in the agricultural sector leads to a 0.27 percent reduction in CO₂ emissions in the long run. Additionally, increases in the GDP of the agricultural sector and population growth lead to higher CO₂ emissions. In the short run, financial development also has an inverse relationship with greenhouse gas emissions, while energy use and population growth are directly related to CO₂ emissions. Therefore, reducing CO₂ emissions requires the adoption of advanced technologies. Pollution control should be prioritized by planners and policymakers.