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The presence of global financial center and environmental degradation: Evidence from Asia-Pacific region.
Student: Nguyễn Thiện Nhân, VNP 25
Supervisor: Dr. Nguyễn Hoài Bảo
The world has observed the formation and advancement of metropolitan cities in the earliest twentieth century. The twenty-first century has witnessed a dramatical increase in the establishment of the global financial centre (GFC). London and New York claim the 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-Pacific region.
Establishing a GFC appears to be an essential goal from emerging markets in the Asia-Pacific region to support economic growth. The establishment of such a centre requires a multifaceted approach in which theoretical and practical aspects are important to be considered. The well-designed and comprehensive analyses of identifying determinants for a GFC are very limited, in particular for the Asia-Pacific region. As such, this study is conducted to examine and identify the fundamental determinants leading to the establishment of a GFC in the Asia-Pacific region. We identify 14 determinants from the current literature. We then construct 16,384 models to consider the relevance and importance of each of these 14 determinants in the context of the Asia-Pacific region. The Bayesian averaging of classical estimates (BACE) is used with a sample of 35 Asia-Pacific for the 2007-2017 period. Findings from our initial analyses indicate that emerging and developing countries in the region should focus on the following four fundamental determinants: the freedom to trade internationally; market size; higher education and training, and the size of the government.
We then extend our analysis using a more robust set of criteria and additional quantitative technique which is known as the weighted average least square. The size of the government appears to be relatively less important, in contrast, the other three components, including (i) freedom to trade internationally; (ii) market size; (iii) higher education and training, are the robustly fundamental determinants for the Asia-Pacific region.
Emerging markets in the Asia-Pacific region have been putting great effort to achieve the right balance between the benefits of economic growth and the costs of environmental degradation. Establishing the GFC is considered as an effective mechanism to support economic growth. However, the benefits from a GFC should not be 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 applying the concept of the Kuznets environmental curve into a relatively new aspect of financial development in the Asia-Pacific region. Other previous papers use either stock market capitalization to GDP or stock market total value-traded to GDP as a proxy for financial development. This study is unique and different from any other papers. The index of financial development is developed based on the fundamental determinants identified from this study. On the sample of 26 countries in the region over the 2007-2017 period, the long-term effect of financial development to environmental degradation are considered using long-term estimators such as the panel fully modified ordinary 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 regression (PSTR). The second-generation Hurlin and Dumitrescu (2012) test is used in determining Granger causality between financial development and environmental degradation. Findings from our paper confirm an inverted U-shaped relationship between financial development and environmental degradation in the Asia-Pacific region. Economic growth and energy consumption are also responsible for the deterioration of environmental quality in the Asia-Pacific region. We then claim that the concept of the Kuznets curve can be applied to the context of financial development. We also find a bidirectional relationship between financial development and environmental degradation. On the ground of findings from this study, several policy implications are provided for the governments in the emerging markets in the Asia-Pacific region to consider. These important implications should be used to achieve the following two fundamental objectives. The first objective is to enhance and support national economic growth by establishing the global financial centre when desired. The second objective is to strike for the right balance between the benefits of financial development by establishing the GFC (to support economic growth) and the costs of environmental degradation.
JEL: C11, C33, C34, F38, F64.
Keywords: Bayesian model averaging, IFC, environmental quality, financial development, principle component analysis