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Can increasing environmental policy stringency promote financial development? Evidence from developed economies

Author

Listed:
  • Mahmoud Hassan

    (University of Nantes)

  • Marc Kouzez

    (CEREFIGE, University of Lorraine)

  • Ji-Yong Lee

    (Audencia Business School)

  • Badreddine Msolli

    (ESSCA School of Management)

  • Hatem Rjiba

    (Paris School of Business)

Abstract

Despite extensive research to explore the channels through which environmental policy stringency can affect economy, to our best knowledge, current literature has not yet studied its impact on financial development in the long term. To fill this void, the current study empirically examines the effect of environmental policy stringency index on financial development index and its components, which are financial institutions development index and financial markets development index, in 27 OECD countries during the period 1990–2015. We find a positive association between environmental policy stringency index and financial development. The results also revealed that the past values of environmental policy stringency index can help to predict financial development index and financial institutions development index. These results imply that financial development is a new channel through which increasing environmental policy stringency could promote economic growth. Moreover, these findings show that environmental policy stringency forms a new positive determinant of financial institutions development in OECD countries.

Suggested Citation

  • Mahmoud Hassan & Marc Kouzez & Ji-Yong Lee & Badreddine Msolli & Hatem Rjiba, 2025. "Can increasing environmental policy stringency promote financial development? Evidence from developed economies," Annals of Operations Research, Springer, vol. 347(1), pages 197-216, April.
    • Handle: RePEc:spr:annopr:v:347:y:2025:i:1:d:10.1007_s10479-023-05190-z
    DOI: 10.1007/s10479-023-05190-z
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    More about this item

    Keywords

    Environmental policy stringency; Financial development; Fully modified ordinary least squares; Dynamic ordinary least squares; Pooled mean group; Granger non-causality test;
    All these keywords.

    JEL classification:

    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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