This study investigates the impact of environmental factors on Turkey’s sovereign credit default swap (CDS) spreads over the period 2005–2023. Using annual data on greenhouse gas (GHG) emissions per capita, energy use per capita, and five-year CDS spreads, we apply the Autoregressive Distributed Lag (ARDL) bounds testing approach and its associated Error Correction Model (ECM) to capture both short-run and long-run dynamics. Unit root tests reveal mixed integration orders, justifying the ARDL framework. The empirical results show that higher GHG emissions significantly increase CDS spreads in both the short and long run. Energy use per capita exhibits a more nuanced role: while contemporaneous increases reduce CDS spreads by signaling stronger economic capacity, lagged effects reveal partial reversal. The ECM results confirm a rapid adjustment toward long-run equilibrium, with over half of deviations corrected within one year. Overall, the findings underscore that Türkiye’s environmental performance is a determinant of its sovereign borrowing costs. From a policy perspective, reducing emissions and transitioning to cleaner energy sources are not only environmentally essential but also financially prudent, as they can mitigate sovereign risk premiums in international credit markets.
Küçükefe et al. (Thu,) studied this question.