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Do Economic, Financial and Institutional Developments Matter for Environmental Degradation? Evidence from Transitional Economies

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Author Info
Tamazian, Artur
Rao, B. Bhaskara

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Abstract

Several studies have examined the relationship between environmental degradation and economic growth. However, most of them did not take into account financial developments and institutional quality. Moreover, Stern (2004) noted that there are important econometric weaknesses in the earlier studies, such as endogeneity, heteroscedasticity, omitted variables, etc. The purpose of this paper is to fill this gap in the literature by investigating the linkage between not only economic development and environmental quality but also financial development and institutional quality. We employ the standard reduced-form modelling approach to control for country-specific unobserved heterogeneity and GMM estimation to control for endogeneity. Our study considers 24 transition economies and panel data for 1993-2004. Our results support the EKC hypothesis while confirming the importance of both institutional quality and financial development for environmental performance. We also found that financial liberalization may be harmful for environmental quality if it is not accomplished in a strong institutional framework.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13015.

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Date of creation: 24 Jan 2008
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Handle: RePEc:pra:mprapa:13015

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Related research
Keywords: Environmental Degradation; Economic Development; Financial Development; Institutional Quality; EKC.;

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Find related papers by JEL classification:
Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounting
Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
P28 - Economic Systems - - Socialist Systems and Transition Economies - - - Natural Resources; Environment

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