Modeling and Analysis of the Impact of Quality Growth and Financial Development on Environmental Sustainability: Evidence from EU Countries

Furkan Yıldırım, Ulaş Ünlü, Ayhan Kuloğlu (akuloglu@nevsehir.edu.tr) and Özkan Çıtak
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Furkan Yıldırım: Faculty of Applied Sciences, Department of Finance and Banking, Akdeniz University, Antalya 07600, Turkey
Ulaş Ünlü: Faculty of Applied Sciences, Department of Finance and Banking, Akdeniz University, Antalya 07600, Turkey
Ayhan Kuloğlu: Nevşehir Vocational School, Department of Accounting and Taxation, Nevşehir Hacı Bektaş Veli University, Nevşehir 50300, Turkey
Özkan Çıtak: Department of Finance, Banking, and Insurance, Vocational School of Social Sciences, Akdeniz University, Antalya 07600, Turkey

Sustainability, 2025, vol. 17, issue 2, 1-18

Abstract: This study examines the impact of financial development and quality growth on environmental sustainability in European Union (EU) countries, making a significant contribution to the existing literature by introducing a composite index for environmental sustainability and emphasizing quality growth as a more inclusive alternative to traditional economic growth indicators. Unlike conventional studies, which often measure environmental sustainability using single indicators, this research introduces a composite index that includes both environmental damage (e.g., carbon emissions) and protective factors (e.g., forest area, renewable energy consumption). This innovative approach provides a more holistic assessment of environmental sustainability, distinguishing this study from existing research. The results emphasize the role of a robust financial system in promoting environmental sustainability, as each unit increase in financial development is positively correlated with the environmental sustainability ratio, encouraging investments and projects that prioritize environmental goals. In addition, the study shows that quality growth, which takes into account social welfare and resource efficiency in addition to economic expansion, is crucial for promoting sustainability. By focusing on quality growth, this study shifts the paradigm from mere quantitative economic expansion to a more comprehensive understanding of growth that integrates social and environmental dimensions. This nuanced approach contrasts with traditional models that focus on quantitative economic growth, highlighting that both quality growth and financial development are critical to supporting long-term environmental goals. This research provides actionable insights for policymakers by emphasizing the need for financial reforms, such as green bond markets and sustainable credit mechanisms, to support sustainable development.

Keywords: environmental sustainability; financial development; quality growth (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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