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The impact of economic and financial development on environmental degradation

Author

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  • Samia Nasreen
  • Sofia Anwar

Abstract

Purpose - – The purpose of this study is to validate the impact of economic and financial development along with energy consumption on environmental degradation using dynamic panel data models for the period 1980-2010. The study uses three sub-panels constructed on the basis of income level to make panel data analysis more meaningful. Design/methodology/approach - – Larssonet al.panel cointegration technique, fully modified ordinary least squares and vector error correction model causality analysis are applied for empirical estimation. Findings - – Main empirical findings demonstrate that financial development reduces environmental degradation in the high-income panel and increases environmental degradation in the middle- and low-income panels. Hypothesis of the environmental Kuznets curve is accepted in all income panels. Granger causality results show the evidence of bidirectional causality between financial development and CO2emission in the high-income panel, and unidirectional causality from financial development to CO2emission in the middle- and low-income panels. Originality/value - – In empirical literature, only a few studies explain the effect of financial development on environment. The present study is an effort to fill this gap by exploring the effect of economic and financial development on environmental degradation.

Suggested Citation

  • Samia Nasreen & Sofia Anwar, 2015. "The impact of economic and financial development on environmental degradation," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 32(4), pages 485-502, October.
    • Handle: RePEc:eme:sefpps:v:32:y:2015:i:4:p:485-502
    DOI: 10.1108/SEF-07-2013-0105
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    Citations

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    Cited by:

    1. Alexander Bass & Dmitry Burakov & Max Freidin, 2019. "Does Financial Development Matter for Environmental Kuznets Curve in Russia? Evidence from the Autoregressive Distributed Lag Bounds Test Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 9(4), pages 334-341.
    2. Shabana Parveen & Saleem Khan & Muhammad Abdul Kamal & Muhammad Ali Abbas & Aamir Aijaz Syed & Simon Grima, 2023. "The Influence of Industrial Output, Financial Development, and Renewable and Non-Renewable Energy on Environmental Degradation in Newly Industrialized Countries," Sustainability, MDPI, vol. 15(6), pages 1-21, March.
    3. Ilu, Ahmad Ibraheem, 2019. "Analysis of the nexus between Environmental quality and Economic growth," MPRA Paper 97369, University Library of Munich, Germany, revised 03 Dec 2019.
    4. Shahbaz, Muhammad & Nasir, Muhammad Ali & Roubaud, David, 2018. "Environmental degradation in France: The effects of FDI, financial development, and energy innovations," Energy Economics, Elsevier, vol. 74(C), pages 843-857.
    5. Raza, Syed Ali & Shah, Nida, 2018. "Impact of Financial Development, Economic Growth and Energy Consumption On Environmental Degradation: Evidence from Pakistan," MPRA Paper 87095, University Library of Munich, Germany.

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