Do Economic, Financial and Institutional Developments Matter for Environmental Degradation? Evidence from Transitional Economies

Artur Tamazian and B. Rao

EERI Research Paper Series from Economics and Econometrics Research Institute (EERI), Brussels

Abstract: Several studies have examined the relationship between environmental degradation and economic growth. However, most of them did not take into account financial developments and institutional quality. Moreover, Stern (2004) noted that there are important econometric weaknesses in the earlier studies, such as endogeneity, heteroscedasticity, omitted variables, etc. The purpose of this paper is to fill this gap in the literature by investigating the linkage between not only economic development and environmental quality but also financial development and institutional quality. We employ the standard reduced-form modelling approach to control for country-specific unobserved heterogeneity and GMM estimation to control for endogeneity. Our study considers 24 transition economies and panel data for 1993-2004. Our results support the EKC hypothesis while confirming the importance of both institutional quality and financial development for environmental performance. We also found that financial liberalization may be harmful for environmental quality if it is not accomplished in a strong institutional framework.

Keywords: Environmental Degradation; Economic Development; Financial Development; Institutional Quality; EKC. (search for similar items in EconPapers)
JEL-codes: O13 P28 Q53 Q56 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2009-02-02
New Economics Papers: this item is included in nep-env and nep-tra
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Do economic, financial and institutional developments matter for environmental degradation? Evidence from transitional economies (2010)
Working Paper: Do Economic, Financial and Institutional Developments Matter for Environmental Degradation? Evidence from Transitional Economies (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eei:rpaper:eeri_rp_2009_02

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