Investigating the relationship among economic growth, environmental pollution, financial development, and trade openness in 8 large muslim countries

One of the macro economic goals of countries is continuous and sustainable economic growth and development. This often creates environmental problems, such as increased use of natural resources and lead to the releasing of larger amounts of contaminants that by considering its importance, economists paid attention to this issue. Many factors affect a country's economic growth. Among these factors, it can be cited the country's financial development and size of trade. The effect quality of financial development on economic growth as well as the role of financial intermediaries depends upon assessing the firms’performance that attempt to innovate in organization. On the other hand, in addition to the structure of the financial sector in a country, trade as a factor in business growth and economic development by creating competition at the international level is to increase competitiveness in the international arena. Although free trade between countries in the long term brings economic prosperity, the freedom to trade in some circumstances may not lead to prosperity. Given the importance of this issue, the impact of trade liberalization on environmental pollution has become one of the challenges facing policy makers. Thus, given the importance of the issue, this study examined the interrelationship between economic growth, environmental pollution, financial development and trade openness during the period of 2012-1980 in the eight largest countries. Many studies have examined the causal relationship between carbon dioxide emissions, economic growth, financial development and trade openness, however, what distinguishes this study from another studies in the field of econometric techniques is Using panel data and simultaneous equations model for the first time in these countries which are examined simultaneously the influence of a) environmental, economic development and openness on economic growth, b) economic growth, financial development and openness on pollution environment ,c) economic growth, environmental pollution and degree of economic openness on the financial development, d) economic growth, environmental pollution and financial development on the openness of the economy. However, in most studies, only causal relationship between two variables is investigated. In addition, the study authors suggest that such experimental work has not been done for the D8 countries Group.

Methodology and data
The general form of the Cobb-Douglas function which is used in this study is as follows:
Y(t)=θ.〖C(t)〗^λ1 〖FD(t)〗^λ2 〖T(t)〗^λ3 〖K(t)〗^α 〖L(t)〗^(1-α) 4
By getting Logarithm of the above series, the following equation reach:
LnY_t=α_1+α_2 lnC_t+α_3 ln〖FD〗_t+α_4 lnT_t+α_5 lnK_t+ε_t 5
As our study is the panel data, equation (5) is rewritten as follows:
LnY_it=α_1+α_2i lnC_it+α_3i ln〖FD〗_it+α_4i lnT_it+α_5i lnK_it+ε_it 6

Where "i=1,…,N " Represents the number of countries, "t=1,…,T" Represents a period of time. System of simultaneous equations in the present study is as follows:

LnY_it=α_1+α_2i lnCO_it+α_3i lnFD_it+α_4i lnT_it+α_5i lnK_it+ε_it (7)

LnCO_it=α_1+α_2i lnY_it+α_3i lnFD_it+α_4i lnT_it+α_5i ln〖Y^2〗_it+α_6i lnEN_it+α_7i lnUR_it+ε_it (8)
LnFD_it=α_1+α_2i lnY_it+α_3i lnCO_it+α_4i lnT_it+α_5i lnIF_it+ε_it (9)
LnT_it=α_1+α_2i lnY_it+α_3i lnCO_it+α_4i lnFD_it+α_5i lnFDI_it+ε_it (10)
i=1,…,8 t=1990 to 2012

The equations are specified and the method of 2SLS is used to estimate. In the above equation. Y، CO، FD، T، K، EN، UR، IF and FDI represent the economic growth, the CO2 emissions , financial development, trade openness, capital, energy, urbanization, inflation and net inflow of foreign direct investment, respectively.
Empirical results:
We apply two-stage least squares method to estimate the system of equations. The results are presented in table 1.
As Table 1 shows, the effect of co2 emissions on growth (Y) of D-8 member countries, is significant and negative. Development Index variables, trade openness and capital has a significant positive effect on economic growth. Production growth has a significant and positive effect on greenhouse gas (CO) emissions. Financial development, trade openness, energy and urbanization variable have positive and significant effect on the environment pollution. Moreover y2 has a negative effect on CO2 gas emissions, but this effect is not significant at the 5% level. Economic growth in these countries at 10% has a significant positive effect on financial development (FD). Trade openness has a significant positive effect on the development of and financial growth. Inflation has a significant and negative impact on financial development. Production growth, financial development and foreign direct investment has a significant and positive impact on the degree of trade openness (T).
Conclusions:
This research investigates relationship among four variables of economic growth, environmental pollution, financial development and trade openness. The results show that there is a bilateral relationship between economic growth and CO2 emissions. In fact, by economic growth, environmental pollution increases because production takes place without regard to their environmental effects. Financial development system have bilateral relationship with economic growth in these countries. In other words, financial development growth in this group of countries increases production and adds environmental pollution. The financial development increases energy consumption or industrial activity improves and thereby increases CO2 emissions. In other words, financial development in this group of countries has not led to the achievement of environmentally friendly technology, yet. In these countries another variable which is affecting environmental pollution, is urbanization. On one hand, by increasing urbanization and industrial plants, on the other hand increasing a large number of vehicles, causing more pollution in the environment. Other affecting factor in these countries is trade openness that can help finance growth and development but also increases CO2 emissions. Trade openness enables countries to access the technologies of their business partners, find their way to the larger markets and thereby increase economic growth. As well as the development of the financial system, increase capital efficiency and capital goods can buy from foreign countries and thus make it possible to be feasible foreign trade. In these countries, high inflation makes financial intermediaries able to operate with maximum efficiency. So if the inflation rate rise, makes the financial sector less and less efficient allocation of capital. these results can be found in the countries of the D-8 countries, which Iran is also present, it should provide the basis to develop the financial system and thus increase production, gain new technologies in the field of environment helped to sustainable growth.