IDEAS home Printed from https://ideas.repec.org/a/wly/sustdv/v33y2025i5p7617-7628.html

Democracy and Financial Development: Drivers or Detractors of Environmental Sustainability in G20 Countries

Author

Listed:
  • Kemal Eyuboglu
  • Umut Uzar

Abstract

This study examines the influence of democracy and financial development on environmental sustainability in G20 countries from 1992 to 2022 using the load capacity factor as a measure of environmental quality. Employing the Cross‐Sectionally Augmented Autoregressive Distributed Lag model, this study explores how key economic variables, such as economic growth, energy consumption, and trade openness, interact with democracy and financial development to impact the load capacity factor. The results indicate that democracy, economic growth, and energy consumption are associated with increased environmental degradation, whereas financial development and trade openness show no significant effects. The study's findings are validated through robustness checks using common correlated effects mean group and augmented mean group estimators. The study highlights the role of democracy as a key factor in exacerbating environmental degradation, while financial development does not demonstrate a notable contribution to improving environmental quality. These findings suggest that G20 countries need to align their democratic and financial systems with sustainable development goals to mitigate environmental challenges.

Suggested Citation

  • Kemal Eyuboglu & Umut Uzar, 2025. "Democracy and Financial Development: Drivers or Detractors of Environmental Sustainability in G20 Countries," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(5), pages 7617-7628, October.
    • Handle: RePEc:wly:sustdv:v:33:y:2025:i:5:p:7617-7628
    DOI: 10.1002/sd.3533
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/sd.3533
    Download Restriction: no
    File URL: https://libkey.io/10.1002/sd.3533?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Joakim Westerlund & David L. Edgerton, 2008. "A Simple Test for Cointegration in Dependent Panels with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(5), pages 665-704, October.
    2. Zhao, Bingyu & Yang, Wanping, 2020. "Does financial development influence CO2 emissions? A Chinese province-level study," Energy, Elsevier, vol. 200(C).
    3. Mehmet Akif Destek & Ä°brahim Halil OÄŸuz & Nuh OkumuÅŸ, 2024. "Do Trade and Financial Cooperation Improve Environmentally Sustainable Development: A Distinction Between de facto and de jure Globalization," Evaluation Review, , vol. 48(2), pages 251-273, April.
    4. Husam Rjoub & Jamiu Adetola Odugbesan & Tomiwa Sunday Adebayo & Wing-Keung Wong, 2021. "Sustainability of the Moderating Role of Financial Development in the Determinants of Environmental Degradation: Evidence from Turkey," Sustainability, MDPI, vol. 13(4), pages 1-18, February.
    5. Acheampong, Alex O. & Opoku, Eric Evans Osei & Dzator, Janet, 2022. "Does democracy really improve environmental quality? Empirical contribution to the environmental politics debate," Energy Economics, Elsevier, vol. 109(C).
    6. Rahman, Mohammad Mafizur & Alam, Khosrul, 2021. "Clean energy, population density, urbanization and environmental pollution nexus: Evidence from Bangladesh," Renewable Energy, Elsevier, vol. 172(C), pages 1063-1072.
    7. Umut Uzar, 2021. "The relationship between institutional quality and ecological footprint: Is there a connection?," Natural Resources Forum, Blackwell Publishing, vol. 45(4), pages 380-396, November.
    8. Maya, Peter H. & Bonilla, Olman Segura, 1997. "The environmental effects of agricultural trade liberalization in Latin America: an interpretation," Ecological Economics, Elsevier, vol. 22(1), pages 5-18, July.
    9. Chudik, Alexander & Pesaran, M. Hashem, 2015. "Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors," Journal of Econometrics, Elsevier, vol. 188(2), pages 393-420.
    10. Grossman, G.M & Krueger, A.B., 1991. "Environmental Impacts of a North American Free Trade Agreement," Papers 158, Princeton, Woodrow Wilson School - Public and International Affairs.
    11. Abbasi, Kashif Raza & Shahbaz, Muhammad & Zhang, Jinjun & Irfan, Muhammad & Alvarado, Rafael, 2022. "Analyze the environmental sustainability factors of China: The role of fossil fuel energy and renewable energy," Renewable Energy, Elsevier, vol. 187(C), pages 390-402.
    12. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    13. Kai Dong & Shaonan Wang & Hengqiang Hu & Ningning Guan & Xiaolei Shi & Ye Song, 2024. "Financial development, carbon dioxide emissions, and sustainable development," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(1), pages 348-366, February.
    14. Paavola, Jouni, 2007. "Institutions and environmental governance: A reconceptualization," Ecological Economics, Elsevier, vol. 63(1), pages 93-103, June.
    15. Hashem Pesaran, M. & Yamagata, Takashi, 2008. "Testing slope homogeneity in large panels," Journal of Econometrics, Elsevier, vol. 142(1), pages 50-93, January.
    16. Li-Chen Chou & Wan-Hao Zhang & Meng-Ying Wang & Fu-Ming Yang, 2020. "The influence of democracy on emissions and energy efficiency in America: New evidence from quantile regression analysis," Energy & Environment, , vol. 31(8), pages 1318-1334, December.
    17. Charfeddine, Lanouar & Mrabet, Zouhair, 2017. "The impact of economic development and social-political factors on ecological footprint: A panel data analysis for 15 MENA countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 76(C), pages 138-154.
    18. Shahbaz, Muhammad & Trabelsi, Nader & Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Jiao, Zhilun, 2021. "Relationship between green investments, energy markets, and stock markets in the aftermath of the global financial crisis," Energy Economics, Elsevier, vol. 104(C).
    19. Asif Raihan & Mamunur Rashid & Liton Chandra Voumik & Salma Akter & Miguel Angel Esquivias, 2023. "The Dynamic Impacts of Economic Growth, Financial Globalization, Fossil Fuel, Renewable Energy, and Urbanization on Load Capacity Factor in Mexico," Sustainability, MDPI, vol. 15(18), pages 1-21, September.
    20. Shahbaz, Muhammad & Solarin, Sakiru Adebola & Mahmood, Haider & Arouri, Mohamed, 2013. "Does financial development reduce CO2 emissions in Malaysian economy? A time series analysis," Economic Modelling, Elsevier, vol. 35(C), pages 145-152.
    21. Destek, Mehmet Akif & Ulucak, Recep & Dogan, Eyüp, 2018. "Analyzing the Environmental Kuznets Curve for the EU countries: The role of ecological footprint," MPRA Paper 106882, University Library of Munich, Germany.
    22. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    23. Maxwell Chukwudi Udeagha & Marthinus Christoffel Breitenbach, 2023. "Exploring the moderating role of financial development in environmental Kuznets curve for South Africa: fresh evidence from the novel dynamic ARDL simulations approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-52, December.
    24. Ahmad M. A. Zamil & Maham Furqan & Haider Mahmood, 2019. "Trade openness and CO2 emissions nexus in Oman," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(2), pages 1319-1329, December.
    25. Laura Policardo, 2016. "Is Democracy Good for the Environment? Quasi-Experimental Evidence from Regime Transitions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(2), pages 275-300, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhao, Wei & Liu, Yishu & Huang, Lihua, 2022. "Estimating environmental Kuznets Curve in the presence of eco-innovation and solar energy: An analysis of G-7 economies," Renewable Energy, Elsevier, vol. 189(C), pages 304-314.
    2. Jian Xue & Zeeshan Rasool & Raima Nazar & Ahmad Imran Khan & Shaukat Hussain Bhatti & Sajid Ali, 2021. "Revisiting Natural Resources—Globalization-Environmental Quality Nexus: Fresh Insights from South Asian Countries," Sustainability, MDPI, vol. 13(8), pages 1-19, April.
    3. Aloysius Mom Njong & Rosy Pascale Meyet Tchouapi & Vera Fuen Kum, 2026. "Economic complexity and ecological footprint: a convergence club analysis constructed on a global sample of countries," SN Business & Economics, Springer, vol. 6(1), pages 1-33, January.
    4. Chen, Jie & Huang, Shoujun & Kamran, Hafiz Waqas, 2023. "Empowering sustainability practices through energy transition for sustainable development goal 7: The role of energy patents and natural resources among European Union economies through advanced panel," Energy Policy, Elsevier, vol. 176(C).
    5. Arshian Sharif & Usman Mehmood & Salman Tariq & Zia Ul Haq, 2024. "The role of financial inclusion and globalization toward a sustainable economy in ASEAN countries: evidence from advance panel estimations," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(4), pages 10243-10260, April.
    6. Yang, Shuangpeng & umar, Muhammad, 2022. "How globalization is reshaping the environmental quality in G7 economies in the presence of renewable energy initiatives?," Renewable Energy, Elsevier, vol. 193(C), pages 128-135.
    7. Delwar Hossain, 2014. "Differential Impacts of Foreign Capital and Remittance Inflows on Domestic Savings in the Developing Countries: A Dynamic Heterogeneous Panel Analysis," Departmental Working Papers 2014-07, The Australian National University, Arndt-Corden Department of Economics.
    8. Obumneke Bob Muoneke & Obiamaka Priscilla Egbo & Kingsley Ikechukwu Okere, 2024. "Coal–environmental quality nexus in EU-part of the Eastern Bloc: Do socioeconomic factors and bureaucracy play a substantial role?," Energy & Environment, , vol. 35(5), pages 2307-2328, August.
    9. Jan Polcyn & Liton Chandra Voumik & Mohammad Ridwan & Samrat Ray & Viktoriia Vovk, 2023. "Evaluating the Influences of Health Expenditure, Energy Consumption, and Environmental Pollution on Life Expectancy in Asia," IJERPH, MDPI, vol. 20(5), pages 1-18, February.
    10. Nafeesa Mughal & Jun Wen & Qianxiao Zhang & Zehra Betül Pekergin & Carlos Samuel Ramos-Meza & Guillermo Pelaez-Diaz, 2024. "Economic, social, and political determinants of environmental sustainability: Panel data evidence from NEXT eleven economies," Energy & Environment, , vol. 35(1), pages 64-87, February.
    11. Aytun, Cengiz & Erdogan, Sinan & Pata, Ugur Korkut & Cengiz, Orhan, 2024. "Associating environmental quality, human capital, financial development and technological innovation in 19 middle-income countries: A disaggregated ecological footprint approach," Technology in Society, Elsevier, vol. 76(C).
    12. Uzar, Umut, 2024. "The critical role of green innovation technologies and democracy in the transition to sustainability: A study on leading emerging market economies," Technology in Society, Elsevier, vol. 78(C).
    13. Ayman Shuayb Sulayman Shuayb & Sindiso Dube & Wagdi Khalifa & Abraham Deka & Ponle Henry Kareem & Behiye Cavusoglu, 2025. "The impact of natural resources rent, renewable energy, and governance on the environmental sustainability—Evidence from resource‐rich countries," Natural Resources Forum, Blackwell Publishing, vol. 49(2), pages 1842-1858, May.
    14. Destek, Mehmet & Sinha, Avik, 2020. "Renewable, non-renewable energy consumption, economic growth, trade openness and ecological footprint: Evidence from organisation for economic Co-operation and development countries," MPRA Paper 104246, University Library of Munich, Germany, revised 2020.
    15. Ahmad, Mahmood & Jiang, Ping & Majeed, Abdul & Umar, Muhammad & Khan, Zeeshan & Muhammad, Sulaman, 2020. "The dynamic impact of natural resources, technological innovations and economic growth on ecological footprint: An advanced panel data estimation," Resources Policy, Elsevier, vol. 69(C).
    16. Umut Uzar, 2025. "The Political Economy of CO 2 Emissions: Investigating the Role of Associational and Organizational Freedoms in Environmental Quality," Sustainability, MDPI, vol. 17(14), pages 1-23, July.
    17. Li, Qingtao & Sharif, Arshian & Razzaq, Asif & Yu, Yangyu, 2022. "Do climate technology, financialization, and sustainable finance impede environmental challenges? Evidence from G10 economies," Technological Forecasting and Social Change, Elsevier, vol. 185(C).
    18. Khan, Zeeshan & Ali, Muhsin & Jinyu, Liu & Shahbaz, Muhammad & Siqun, Yang, 2020. "Consumption-based carbon emissions and trade nexus: Evidence from nine oil exporting countries," Energy Economics, Elsevier, vol. 89(C).
    19. Tarek Ghazouani & Samir Maktouf, 2024. "Impact of natural resources, trade openness, and economic growth on CO2 emissions in oil‐exporting countries: A panel autoregressive distributed lag analysis," Natural Resources Forum, Blackwell Publishing, vol. 48(1), pages 211-231, February.
    20. Kong Ximei & Muhammad Qasim Javaid & Tanzeela Shams & Muhammad Sibt‐e‐Ali, 2025. "Information and communication technology, economic globalization, and environmental sustainability in APEC nations: Insights from LCC and EKC hypotheses testing," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(1), pages 878-903, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:sustdv:v:33:y:2025:i:5:p:7617-7628. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-1719 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.