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

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.