Does the impact of financial development reinforce sustainability ecological footprint? Fresh evidence from middle and high-income economies

Abstract

In this age of globalization, every country tries to achieve sustainable growth by handling environmental challenges. In the last few decades, massive human activities have been fulfilled by destroying natural resources, and ecological footprint is an excellent way to assess it. Thus, the present study delves into the role of financial development and ecological footprint by controlling urbanization, export diversification, and industrialization. A selected dataset covering 1990 to 2020, containing 43 middle income and 45 high income countries, has been compiled due to data availability. The empirical outcomes were deduced using the Panel Quantile Regression due to outliers and non-normality in the data set. The results demonstrate that financial development suggests the inverted U-shaped curve to determine the ecological footprint in the 25th and 50th quantiles. It shows that a sophisticated financial development declines ecological footprint. Further analysis explores that in middle income countries, only China and higher income countries, Australia, Denmark, Italy, Germany, Japan, France, Korea(R), Netherlands, Luxembourg, Singapore, Switzerland, Spain, the United Kingdom, and the United States have achieved higher financial development, which started declining their ecological footprint. In addition, Industrialization increases the ecological footprint, while export diversification and urbanization have mixed effects across quantiles and countries. This study suggests that the remaining countries should focus on improving their financial development sector to reduce their ecological footprint.