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Financial development, inclusive growth, and environmental quality: emerging markets perspective

Author

Listed:
  • Louis David Junior Annor

    (University of Aveiro
    University of Aveiro
    Ghana Communication Technology University)

  • Margarita Robaina

    (University of Aveiro
    University of Aveiro)

  • Elisabete Vieira

    (University of Aveiro
    Higher Institute of Accounting and Administration of University of Aveiro, University of Aveiro)

Abstract

The Sustainable Development Goals specifically goals 6,7, 8, 12, 13, 14 and 15 aim to prevent environmental degradation, promote biodiversity, reduce carbon emissions, improve energy consumption, and preserve the ecosystem to support inclusive economic development. This paper sought to explore the nexus between financial development (FD), inclusive growth, and environmental quality (EQ) in Sub Saharan Africa (SSA) for the 1990–2018 period. Further, this study reconceptualizes the traditional Environmental Kuznets Curve into the Financial Development Environmental Kuznets Curve (FDEKC) that explains the finance-environment relationship in varied economic development strata (High human development index—HHDI, Medium human development—MHDI, Lower human development index—LHDI) using two proxies of EQ: ecological footprint and CO2 emissions. The panel corrected standard error estimator by Beck and Katz (Am Polit Sci Rev 89(3):634–647, 1995) was used to estimate the models. The results suggest that (1) there is a non-linear (inverted U-shaped) relationship between FD and EQ (defined by ecological footprint) in both the HHDI and MHDI economies in Sub-Saharan Africa. However, FD improves EQ in LHDI economies both at the initial stage of FD and long term. (2) The nexus between FD and EQ (defined by CO2 emissions) is U-shaped in HHDI economies, an inverted U-shaped in LHDI economies, and deteriorating in MHDI economies (3) Inclusive growth, as defined by a holistic index, has a deteriorating effect on EQ (CO2 emissions) across all groups. However, while inclusive growth is inimical to EQ (ecological footprint) in MHDI economies, it improves EQ in LHDI economies. This study concludes that EQ assessment requires a tailor-made strategy that considers each country's particulars, including its resources and economic situation. Further, SSA countries should ensure equitable distribution of the advantages of economic growth and augment FD to improve and EQ.

Suggested Citation

  • Louis David Junior Annor & Margarita Robaina & Elisabete Vieira, 2025. "Financial development, inclusive growth, and environmental quality: emerging markets perspective," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 27(3), pages 7407-7433, March.
    • Handle: RePEc:spr:endesu:v:27:y:2025:i:3:d:10.1007_s10668-023-04198-6
    DOI: 10.1007/s10668-023-04198-6
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