Financial development and environmental degradation: Do human capital and institutional quality make a difference?

Ahmad Mahmood, Ahmed Zahoor, Yang Xiyue, Nazim Hussain and Avik Sinha

MPRA Paper from University Library of Munich, Germany

Abstract: Emerging countries are heading towards economic prosperity; however, the process of development has enhanced their ecological footprint. Therefore, to safeguard the environment, it is essential to identify the factors that affect the ecological footprint (EF). In this perspective, this study explores the effect of financial development, human capital, and institutional quality on the EF in emerging countries. Furthermore, we explore the effect of financial development on EF through the channel of human capital. In addition, we investigate the role of institutional quality in the financial development-EF nexus. Using the panel data from 1984 to 2017, we employed the cross-sectional autoregressive distributed lag (CS-ARDL) technique to conduct the short-run and long-run empirical analysis. The empirical outcomes unveiled that financial development degrades the ecological quality by raising the EF. The findings further unfolded that human capital and institutional quality reduce the EF. Moreover, financial development fosters environmental sustainability through the channel of human capital. Additionally, institution quality reduces the negative ecological impacts of financial development. The causality analysis suggested that any policy related to financial development, human capital, and institutional quality will affect EF but not the other way round. Based on these findings, emerging economies should promote environmental sustainability by promoting human capital and effectively using financial resources.

Keywords: Financial development; Human capital; Institutional quality; Environmental degradation; CS-ARDL (search for similar items in EconPapers)
JEL-codes: Q3 (search for similar items in EconPapers)
Date: 2021, Revised 2021
New Economics Papers: this item is included in nep-env and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:110039

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