Finance–environment dynamics in emerging economies: ARDL, DCC-GARCH and time-varying granger evidence from Brazil and Türkiye (1970-2023)

The ecological pressures faced by Brazil and Türkiye, together with their comparable shares in global emissions, highlight the need to reconcile economic growth objectives with environmental sustainability. In this context, this study investigates the dynamic effects of energy consumption, trade openness, government expenditure, bank credit, and foreign direct investment on CO 2 emissions in Türkiye and Brazil over the period 1970–2023. To provide comprehensive empirical evidence, the study employs ARDL, DCC-GARCH, and time-varying Granger causality approaches. The findings reveal that, in Türkiye, energy consumption, government expenditure, trade openness, and foreign direct investment contribute to higher CO 2 emissions, supporting the Pollution Haven hypothesis and the presence of production-based pollution dynamics. In Brazil, trade openness is found to reduce emissions, whereas energy consumption and foreign direct investment increase them. Moreover, bank credit emerges as the strongest and most stable causal driver of CO 2 emissions in Brazil, suggesting that the structure and direction of financial intermediation play a critical role in shaping environmental outcomes. Overall, the results demonstrate that uniform policy prescriptions are insufficient for emerging economies. While Türkiye should prioritise green industrial transformation and the environmentally sustainable allocation of public resources, Brazil should focus on reforms aimed at greening its financial system. • ARDL–DCC–TVGC reveal long- and short-run CO 2 drivers in Türkiye and Brazil • Energy and FDI raise emissions in both economies via distinct channels • Trade openness fuels CO 2 in Türkiye but cuts it in Brazil • Bank credit is Brazil’s most persistent source of emission pressure • Results call for country-specific ETS and green-finance policies