The presence of global financial center and environmental degradation: Evidence from Asia Pacific region
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The presence of global financial center and environmental degradation: Evidence from Asia Pacific region
By Nguyen Thien Nhan (VNP 25)
Supervisor: Dr. Nguyen Hoai Bao
Abstract:
The world has observed the formation and advancement of metropolitan cities in theearliest twentieth century. The twenty-first century has witnessed a dramatical increasein the establishment of the global financial centre (GFC). London and New York claimthe first and second major and largest centres in the world stage. Hongkong, Singapore,Shanghai, Tokyo, Sydney appear to be the main financial centres in the Asia-Pacificregion.Establishing a GFC appears to be an essential goal from emerging markets in theAsia-Pacific region to support economic growth. The establishment of such a centrerequires a multifaceted approach in which theoretical and practical aspects are impor-tant to be considered. The well-designed and comprehensive analyses of identifyingdeterminants for a GFC are very limited, in particular for the Asia-Pacific region. Assuch, this study is conducted to examine and identify the fundamental determinantsleading to the establishment of a GFC in the Asia-Pacific region. We identify 14 de-terminants from the current literature. We then construct 16,384 models to considerthe relevance and importance of each of these 14 determinants in the context of theAsia-Pacific region. The Bayesian averaging of classical estimates (BACE) is used witha sample of 35 Asia-Pacific for the 2007-2017 period. Findings from our initial analy-ses indicate that emerging and developing countries in the region should focus on thefollowing four fundamental determinants: the freedom to trade internationally; marketsize; higher education and training, and the size of the government.We then extend our analysis using a more robust set of criteria and additionalquantitative technique which is known as the weighted average least square. The sizeof the government appears to be relatively less important, in contrast, the other threecomponents, including (i) freedom to trade internationally; (ii) market size; (iii) highereducation and training, are the robustly fundamental determinants for the Asia-Pacificregion.Emerging markets in the Asia-Pacific region have been putting great effort toachieve the right balance between the benefits of economic growth and the costs ofenvironmental degradation. Establishing the GFC is considered as an effective mech-anism to support economic growth. However, the benefits from a GFC should notbe at the expense of quality of the environment in order to achieve the so-called sustainable economic development. As such, this study is then extended by applyingthe concept of the Kuznets environmental curve into a relatively new aspect of finan-cial development in the Asia-Pacific region. Other previous papers use either stockmarket capitalization to GDP or stock market total value-traded to GDP as a proxyfor financial development. This study is unique and different from any other papers.The index of financial development is developed based on the fundamental determi-nants identified from this study. On the sample of 26 countries in the region overthe 2007-2017 period, the long-term effect of financial development to environmentaldegradation are considered using long-term estimators such as the panel fully modifiedordinary least square (PFMOLS), and panel autoregressive distributed lag (PARDL),including the pooled mean group model (PMGARDL); the mean group (MGARDL);the dynamic fixed effect estimator (DFEARDL) and the Panel smooth transition re-gression (PSTR). The second-generation Hurlin and Dumitrescu (2012) test is usedin determining Granger causality between financial development and environmentaldegradation. Findings from our paper confirm an inverted U-shaped relationship be-tween financial development and environmental degradation in the Asia-Pacific region.Economic growth and energy consumption are also responsible for the deterioration ofenvironmental quality in the Asia-Pacific region. We then claim that the concept of theKuznets curve can be applied to the context of financial development. We also find a bi-directional relationship between financial development and environmental degradation.On the ground of findings from this study, several policy implications are provided forthe governments in the emerging markets in the Asia-Pacific region to consider. Theseimportant implications should be used to achieve the following two fundamental ob-jectives. The first objective is to enhance and support national economic growth byestablishing the global financial centre when desired. The second objective is to strikefor the right balance between the benefits of financial development by establishing theGFC (to support economic growth) and the costs of environmental degradation.
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