The Impact of Financial Development, Economic Growth, Trade and Population Growth on CO2 Emissions in the Eastern European Countries

Abstract

The environmental sustainability index was created to manage and preserve ecological vitality, which is essential to a nation’s social and economic development, as well as to safeguard public health. Both the environment and human health are at risk due to the rise in CO2 emissions. The aim of this study is to estimate the effect of financial development, trade, economic growth, and population growth on CO₂ emissions in Eastern European countries, including Belarus, Bulgaria, Czechia, Hungary, Moldova, Poland, Romania, Russia, Slovakia, and Ukraine. The analysis was conducted using panel data and a random effects model for the period 2006–2023. The choice of the random effects model was supported by the Hausman test. Finding in this research for Eastern European countries shows that economic growth is positively connected with CO2 emissions. These findings partially align with the EKC hypothesis, where environmental degradation initially rises with income but may decline after reaching a certain economic threshold. Suggesting that current growth exemplars continue to rely in pollution comprehensive movement. On the contrary, financial development based on the finding has a negative effect on CO2 emissions, proposing such a more sophisticated financial system that might promote admittance to ecofriendly financing system. Interestingly, in our model, population growth appears to reduce emissions, possibly due to improvements in per capita energy efficiency. Policymakers are encouraged to foster green financial systems and adopt growth models that decouple emissions from economic expansion. As for trade, it was found to have no significant impact in this study.