Mitigating Effects of Globalization and Governance Quality on Finance-Environmental Quality Association: Evidence from ECOWAS

A production and industrialized economy are sine qua non for growth and development, especially for the sub-region of Economic Community of West African States (ECOWAS). Empirical evidences suggest that optimized financial development can improve environmental quality. However, the present researchers are doubtful if financial development could be optimized for sustainable environment amidst disruptions in global relations and economic governance. Therefore, the main thrust of the study is to ascertain if globalization and governance quality interacting with financial development could produce mitigating effects on environmental quality in ECOWAS sub-region in order to help ECOWAS achieve sustainable development goals (SDGs) 11, 12, 13, 14, and 15, respectively. The study adopted two proxies for environmental quality (carbon emission and ecological foot print) resulting into two models for robust analysis. The two models were built considering the Hypothesis of the Environmental Kuznet Curve (EKC) and the interactions of globalization, political stability, and governance effectiveness, each on financial development. The researchers adopted cross-sectional auto-regressive distributed lag (CS-ARDL) estimation technique in estimating the results of the models. Results indicate that when carbon (CO2) emission stands as proxy for environmental quality, financial development (FD) interacting with each of globalization (GLO), political stability (PSA), and governance effectiveness (GES) improved significantly the environmental quality only in the long term. Similarly, we adopt ecological footprint to measure environmental quality; results further reveal that the interaction of FD and GLO significantly worsened environmental quality in the long term whereas the short-term effect is not significant. Conversely, FD interacting with each of PSA and GES significantly improved quality of environment in the long term only. The study recommends adoption of environmentally-friendly technologies in ECOWAS global trade relations and in her exploitation of natural resources.