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Does financial development stimulate environmental sustainability? Evidence from a panel study of 115 countries

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  • Mirza Md Moyen Uddin

Abstract

This paper investigates the moderation effect of financial development (FD) on the environmental Kuznets curve (EKC). Using comprehensive panel data of 115 countries spanning the 1990–2016 period and dividing the countries into different income groups, the researcher found systematic differences in the relationship between significant indicators of environmental degradation and economic growth. More specifically, the interaction effect of FD on the relationship between gross domestic product (GDP) growth and CO2 emissions are positive; nevertheless, the interaction effect of FD on the relationship between GDP squared and CO2 emissions become negative for all income groups and therefore supports the EKC. Moreover, the interaction effect of FD is negative on the relationship of GDP with both CH4 and PM2.5 emissions in the middle‐income groups, whereas the interaction effect of FD on the relationship between GDP squared and PM2.5 emissions are negative for the high‐income group. Our results suggest that FD can reduce environmental degradation without adversely impacting on growth.

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  • Mirza Md Moyen Uddin, 2020. "Does financial development stimulate environmental sustainability? Evidence from a panel study of 115 countries," Business Strategy and the Environment, Wiley Blackwell, vol. 29(6), pages 2871-2889, September.
    • Handle: RePEc:bla:bstrat:v:29:y:2020:i:6:p:2871-2889
    DOI: 10.1002/bse.2591
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