A Static and Dynamic Econometric Study of the Impact of Financial Development on Environmental Sustainability in Sub-Saharan Africa

Purpose: Countries across the globe face the challenge of balancing socio-economic development goals with environmental sustainability. The difficulty in reconciling development goals with a sustainable environment is that the processes involved in creating economic prosperity are, in themselves, linked to environmental problems. This study investigated the static and dynamic impact of financial development (FD) on environmental sustainability using annual data from 47 countries in sub-Saharan Africa (SSA) from 1990 to 2022.Design/Methodology/Approach: This study applied the panel estimated generalised least squares (EGLS) cross-section seemingly unrelated regression (SUR) with panel corrected standard errors (PCSE) technique alongside the pool mean group (PMG) version of the dynamic panel autoregressive distributed lag (ARDL) estimation method.Findings: Empirical findings show that FD’s impact on environmental sustainability depends on how the multi-dimensional concept of environmental sustainability is measured. We observed that FD exacerbates environmental degradation via carbon emissions, and at the same time significantly bolsters the sustainability of the environment through dwindling natural and forest resources’ depletion.Implications/Originality/Value: We recommend that selective lending policies be operationalised in the commercial banking space such that customised and targeted credit policies should be rolled out for different industries and sectors according to their operations’ environmental impact