Financial Liberalization and the Environmental Quality: Evidence from Tunisia

The main purpose of this study is to investigate whether the liberalization of the financial sector has deteriorated the quality of the environment in Tunisia. To this end, we used data which covers the period from 1971 to 2011 and we applied an econometric model based on cointegration analysis and error correction techniques. The empirical results reveal strong evidence of the existence of a bidirectional causal relationship between per capita carbon emissions and per capita real income. On the one hand, this interdependency indicates that Tunisia needs more carbon dioxide emissions to realize prosperity and buoyant economic growth. On the other hand, more carbon dioxide emissions also stimulate higher economic growth. Therefore, policy makers should take the right decision on how to preserve environment quality without hampering economic growth.