Investigation of the Relationship Between Financial Development and CO2 Emissions: The Case of Turkey and Cyprus

Small and medium-sized businesses (SMEs) can thrive with the assistance of the financial industry by having access to financing. Generally speaking, SMEs employ more people and generate more employment than huge corporations. In addition, the emergence of new financial instruments and services offers new opportunities to both investors and savers and enables growth to be self-feeding. Financial developments affect many areas, especially today, when financialization has gained a global dimension and the effectiveness of neo-liberal policies has started to increase again. One of these areas is the environment. With financial development, the use of industry and fossil fuels has intensified. This situation brings about environmental pollution and an increase in greenhouse gas emissions. Greenhouse gas compounds contain Carbon Dioxide (CO2), which can reach 26%. This study looked at the connection between financial growth and carbon dioxide emissions in this environment. The results of Toda and Yamamoto's causality analysis demonstrate that there is no causal connection between the series of Turkey and Cyprus. In this context, we can say that industrialization and financial development have not yet produced negative consequences for these countries regarding CO2 emission. Keywords: Financial Development, CO2 emission, Toda and Yamamoto's causality