New insight into examining the role of financial development in economic growth effect on a composite environmental quality index.

Abstract

The inclusion of an index, which can be the representative of environmental quality from different aspects, seems to be of paramount significance. This issue is a major challenging one in the economic-environmental literature. This study investigates the role of financial development in economic growth effect on the composite environmental quality index (CEQI) in two groups of selected Organization of the Petroleum Exporting Countries (OPEC) and Organization for Economic Co-operation and Development (OECD) countries. In this regard, System Generalized Method of Moment (SYS-GMM) is applied to fit the research models. According to the findings, in the selected OPEC countries, financial development reinforces negative impacts of economic growth on environmental quality. In the selected OECD countries, economic growth has negative effect on the environmental quality and financial development weakens this effect. The effect of financial development on the CEQI is respectively negative and positive in OPEC and OECD countries. Moreover, in both groups of selected countries, energy consumption and economic growth have a negative impact on the CEQI; nonetheless, trade openness has a positive effect. Accordingly, some policy suggestions and new recommendations are presented for future studies, which would contribute to the better implementation of economic-environmental policies. Graphical abstract.