Investigating the moderating role of financial development in environmental degradation in India

Abstract

The present study investigates the moderating role of financial development in environmental degradation in India. This study uses time-series data for a period of 46 years from 1971 to 2016 and employs an autoregressive distributed lag (ARDL) bound testing approach with two models (direct effect and moderating effect). The study reveals that economic growth and non-renewable energy consumption are the main factors that worsen environmental quality in India while the impact of financial development on carbon emissions is negatively significant. Further, the findings of this study confirm the significant moderating effect of financial development on the impact of economic growth on carbon emissions. This study suggests that financial development can be used as a policy variable to decrease the environmental cost without hurting the economic growth in India.