Does financial development moderate the link between technological innovation and environmental indicators? An advanced panel analysis

Abstract

This study analyzes the role of financial development (FD) on the impact of technological innovation (TI) on six environmental quality indicators for the 25 economies that are part of the Organization for Economic Cooperation and Development for the period from 2000 to 2019. We use a two-step dynamic generalized method of moments approach to understand this relationship. The results show that FD augments the positive effects of TI on four of the six environmental indicators, namely ecological footprint, adjusted net savings, pressure on nature, and environmental performance. However, no significant effects on environmental sustainability and environmental vulnerability indices were found. When considering all of the environmental quality indicators, TI appears to enhance environmental quality. We find evidence to support the existence of the environmental Kuznets curve in the context of each environmental indicator and economic growth. Moreover, FD and energy consumption appear to accelerate environmental degradation. Based on these results, FD should be viewed as an important parameter in designing policies for innovation to achieve the goal of net-zero carbon emissions.