The Moderating Effect of Institutional Quality on the Financial Development and Environmental Quality Nexus

Abstract

Environmental sustainability is a major concern of contemporary societies, businesses, and governments. However, there is a lack of knowledge as to how countries can achieve the goal to end poverty, whilst protecting the planet. It is the objective of our study to examine the moderating role of institutional quality on the financial development and environmental quality nexus in South Asia. Our sample consists of panel data of five South Asian countries (India, Bangladesh, Nepal, Sri Lanka and Pakistan) from 1984 to 2018. We find that financial development increases CO2 emissions in this region, implying that countries in South Asia have utilized financial development for capitalization, instead of improving production technology. Institutional quality moderates the negative impact of financial development on environmental sustainability. An implication of our findings is that efforts to improve institutional quality may help to promote sustainable development in South Asia.

Institutions Powers, financial development and environmental factors influence on Carbon emission: Evidence from a Global Perspective

“…Likewise, the interaction term of institutional quality and foreign direct investment is also negative which indicates that strong quality of institutions can control the harmful impact of FDI inflow and help reducing carbon emission by implementing rules and regulation for foreign direct investment not to invest in polluted industries while to invest and bring new technologies which are environment friendly. This result is in line with the findings of (Hunjra et al, 2020). We can compare the harmful impact of FDI on environment especially in developing countries are harmful due to poor level of regulatory framework.…”

“…In this way, the harmful impact of financial development on environment can be minimized. Our results are in line with those of (Hunjra et al, 2020). Likewise, the interaction term of institutional quality and foreign direct investment is also negative which indicates that strong quality of institutions can control the harmful impact of FDI inflow and help reducing carbon emission by implementing rules and regulation for foreign direct investment not to invest in polluted industries while to invest and bring new technologies which are environment friendly.…”

“…Beside the index of institutions quality constructed of six indicators, we also use a single variable to proxy for institution quality which is control of corruption. This indicator is recently used by (Hunjra, Tayachi, Chani, Verhoeven, & Mehmood, 2020) and (H. . We use this indicator separately to deeply know the role of institution quality which as a robust check.…”

Revisiting Natural Resources—Globalization-Environmental Quality Nexus: Fresh Insights from South Asian Countries

“…On the other hand, in the year 2018, the per capita ecological footprint was1.21, 0.87, 1.09, 0.85, 1.60, and 4.53 global hectares in India, Pakistan, Nepal, Bangladesh, Sri Lanka, and Bhutan, respectively (see Table 1). Although many studies have analyzed the environmental issues for various groups of countries, for South Asian countries, activities in this important field are severely limited, and the integrated research in this subject is even missing [29]. Hence, this research contributes to the existing literature by filling the existing gap in the following ways: (i) though the association between natural resources, globalization, and environmental quality has been examined by some scholars, the relationship has not yet been clear [29], which calls for further investigation.…”

“…Although many studies have analyzed the environmental issues for various groups of countries, for South Asian countries, activities in this important field are severely limited, and the integrated research in this subject is even missing [29]. Hence, this research contributes to the existing literature by filling the existing gap in the following ways: (i) though the association between natural resources, globalization, and environmental quality has been examined by some scholars, the relationship has not yet been clear [29], which calls for further investigation. No study is available currently that has evaluated the impact of the extraction of natural resources and globalization on environmental quality in South Asian countries.…”