FOSTERING GREEN TRANSITION IN CENTRAL AND EASTERN EUROPE: CARBON DIOXIDE EMISSIONS, INDUSTRIALIZATION, FINANCIAL DEVELOPMENT, AND ELECTRICITY NEXUS

Abstract

Climate change presents a substantial impediment for the global community and prompts policymakers worldwide to prioritize environmental goals when defining national development strategies. Prioritizing these goals is particularly challenging for governments of developing economies still relying on fossil fuels, foreign capital, and industry contribution to GDP. This study examines the relationships between carbon dioxide emissions, industry value added, financial development, and electricity generation in 15 Central and Eastern European countries from 1995 to 2021. To achieve this objective, we examined stationarity and cointegration and employed a vector error correction model to investigate causalities between the variables, along with a variance decomposition analysis. Our findings suggest that the short-run unidirectional causalities exist from industry value-added to carbon dioxide emissions and from carbon dioxide emissions to financial development and electricity generation. Long-term causality exists between carbon dioxide emissions and industry value added. The findings shed light on the challenges and opportunities these countries face in transitioning to climate neutrality and meeting the decarbonization targets. Within this context, the findings underscore the significance of crafting customized strategies for these economies to navigate the complex landscape of climate change while promoting sustainable industrial, electricity and financial sector development.