Financial Institutional and Market Deepening, and Environmental Quality Nexus: A Case Study in G-11 Economies Using CS-ARDL

Abstract

This study presents a new insight into the dynamic relationship between financial institutional deepening (FID), financial deepening, financial market deepening (FMD), foreign direct investment (FDI), economic growth (GDP), population, and carbon dioxide emissions (CO2e) in the G-11 economies by employing a cross-sectionally augmented autoregressive distributed lag (CS-ARDL) approach during 1990–2019. The outcomes from the CS-ARDL and dynamic common correlated effects mean group (DCCEMG) models shows that financial deepening, GDP, FDI, and population degraded environmental quality both in the short run and the long run. Contrary to this, FID and FMD improves environmental quality in these countries. The government should work to maximize financial institutions (access, depth, efficiency) and financial markets (access, depth, efficiency) to reduce the CO2e. A strong positive and in-phase correlation of CO2e with economic growth and population is observed for G-11 countries. These results suggest policy makers should further improve financial institutions by creating opportunities for their populations. Moreover, the governments of G-11 countries should revise their foreign direct investment policies and attention should be given to import efficient means of energy production.

Green innovation, globalization, financial development, and CO2 emissions: the role of governance as a moderator in South Asian countries

“…The use of energy-efficient equipment is one way that financial development reduces carbon emissions, according to this viewpoint (Charfeddine and Kahia 2019;Shahzad et al 2017;Tamazian and Rao 2010). According to some research, financial development slowed down environmental damage (Khalid et al, 2021;Mehmood et al, 2022;Sethi et al, 2020;Zaidi et al, 2019). Furthermore, Sethi et al, (2020) used the vector error correction model (VECM) Granger causality test to investigate the relationship between financial development and carbon emissions in India from 1980 to 2015.…”