Increase In Financial Development Research Articles

Can financial development affect environmental quality in the presence of economic uncertainty and informal activities? Exploring the linkages in the middle-income countries

PurposeThe significance of this research lies in providing an understanding of how economic conditions, including financial development, informal economic activities and economic uncertainty, influence carbon emissions and tries to offer valuable insights for policymakers to promote sustainable development.Design/methodology/approachThe Panel-ARDL method is employed for a group of 30 developing countries from 1990 to 2018. This study analyzes the data obtained from the World bank, International Monetary Fund and World Uncertainty databases.FindingsBased on the empirical results of the extended model, an increase in GDP and energy intensity is associated with an 83 and 14% increase in carbon emissions, respectively. Conversely, a 1% increase in financial development and economic uncertainty is linked to significant decrease in carbon emissions (about 47 and 23%, respectively). Finally, an increase in the informal economy can lead to a negligible yet significant decrease in carbon emissions. These results reveal that financial development plays an effective role in reducing CO2 emissions. Moreover, while economic uncertainty and informal economy are among unfavorable economic conditions, they contribute in CO2 reduction.Practical implicationsTherefore, fostering financial development and addressing economic uncertainty are crucial for mitigating carbon emissions, while the impact of informal economy on emissions, though present, is relatively negligible. Accordingly, policies to control uncertainty and reduce the informal economy should be accompanied by environmental policies to avoid increase in emissions.Originality/valueThe originality of this paper lies in its focus on fundamental changes in the economic environment such as financial development, economic uncertainty, and informal activities as determinants of carbon emissions. This perspective opens up new avenues for understanding the intricate relationship between carbon emissions and economic factors, offering unique insights previously unexplored in the literature.

THE FINANCIAL DEVELOPMENT, INSTITUTIONS, AND POVERTY REDUCTION: EMPIRICAL EVIDENCE FROM SOUTH ASIAN COUNTRIES

Fighting poverty is one of the most critical targets of development plans and initiatives. In the pursuit of lasting growth, emerging nations now face the most challenging issue of eliminating poverty, which remains one of the most significant challenges addressing humanity nowadays. The study explores the relationships between the institutional quality, financial development, and poverty-fighting initiatives of South Asian states. It goes beyond the potential bias in earlier studies caused by omitting variables by considering the impact of the interaction between the financial sector and institutional framework. The fixed effects models with STATA15 are employed in this study from 2000 to 2019. This study's analysis uses panel data and secondary sources to conduct the inquiry with a sample of 7 South Asian economies such as Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. This comprehensive compilation of annual data was done with consultation from the International Monetary Fund (IMF) and the World Bank Development Indicators (WDI). The study results show that a 1% increase in financial development is associated with a 39.88% decrease in poverty, which is statistically significant and favourable. It also reveals that institutional quality plays a vital role in poverty reduction in South Asia, with a 1% increase in institutional quality leading to a 2.61% increase in poverty. Besides, a 1% increase in GDP per capita growth correlates with a 0.12% decrease in poverty. The study's findings provide significant insights into poverty reduction by considering the relationship between institutional challenges and financial development through a flexible, functional structure in South Asian countries.

Factors influencing the material footprint in the USA.

Using novel approaches, namely Fourier autoregressive distributive lag (F-ADL) cointegration and nonlinear autoregressive distributed lag (N-ARDL), this article analyzes how infrastructure investment and environmental R&D affected the material footprint from 1995Q1 to 2019Q4 in the USA while controlling financial development and economic growth. The outcomes reveal that (i) a reduction in the material footprint can be achieved through increasing environmentally related R&D; (ii) by increasing the environmental R&D, material consumption can be used more effectively; (iii) an increase in financial development leads to an increase in the material footprint; and (iv) the slowdown of the economy contributes to efficient material consumption. Integr Environ Assess Manag 2024;00:1-8. © 2024 SETAC.

Energy Consumption, Economic Growth and the Environmental Degradation in Asian Countries

Environmental pollution is an emerging issue in Asian countries. It affects quality of life and is dangerous for human life. It has been observed that carbon emissions from Asian countries are speedily increasing. The major factors causing environmental degradation are GDP per capita, industrialization, urbanization, and energy use. This study is an effort to highlight the causes of environmental degradation in eight Asian countries by using 10 years of data. Moreover, the study has used the fixed effect method to highlight the significance of major causes of environmental degradation in the concerned economies. Results show that urban population, energy consumption, economic growth, and financial development increase carbon emission CO2 (i.e., environmental degradation) in Asian countries. The result suggested that the Government must reduce the carbon emission level in these countries and must provide a better environment to the population.

Unveiling the nexus of globalization, economic growth, and environmental sustainability

AbstractMalaysia's rapid economic development, although remarkable, has resulted in a significant contribution to carbon dioxide (CO2) emissions in Southeast Asia. Despite this environmental challenge, Malaysia is actively working to reduce its carbon footprint. However, a limited understanding persists regarding how economic globalization (EGB), gross domestic products (GDP), financial development (FD), population density (PD), and energy consumption (ENC) intricately influence the country's ecological footprint (EP). To address this gap, this study examines both symmetrical and asymmetrical short‐ and long‐term impacts of EGB, GDP, FD, PD, ENC, and EP in Malaysia using Autoregressive Distributed Lag (ARDL) and nonlinear ARDL cointegration methods, analyzing data from 1984 to 2021. The findings reveal both symmetrical and asymmetrical long‐term relationships between these variables and the ecological footprint, particularly concerning financial development. The results indicate that, as financial development increases, there is a reduction in Malaysia's ecological footprint. This implies that a more developed financial sector may contribute to environmentally sustainable practices or investments. The study's revelation that economic globalization is associated with an increase in Malaysia's ecological footprint raises important considerations. This finding may prompt a closer examination of the environmental consequences of global economic integration, emphasizing the need for sustainable development practices. The acknowledgment that both positive and negative changes in economic globalization led to decreased ecological footprints adds complexity to the relationship. This suggests that not all aspects of economic globalization have uniformly negative ecological consequences. Understanding these nuances is crucial for formulating balanced and informed environmental policies. These findings carry significant policy implications. Policymakers may need to consider the dual impact of economic globalization and the beneficial role of financial development in crafting effective environmental policies. Incorporating environmental considerations into economic planning can help strike a balance between economic development and ecological conservation.

Study of a triple bottom line perspective to reach a sustainable development model for critical minerals using financial development

This study examines sustainable development in critical minerals extraction within the CEPEA region, focusing on 13 economies. Using the Triple Bottom Line (TBL) framework and CS-ARDL approach, we assess economic, social, and environmental factors. Results indicate a 1% increase in financial development corresponds to a 0.14% and 0.19% short and long-term escalation in CO2 emissions. Similarly, a 1% rise in FDI associates with a 0.17% short-term and a more substantial 0.29% long-term increase in CO2 emissions. Unemployment rates link to reduced emissions, while income levels correlate with elevated emissions due to heightened consumption. Comparative analysis reveals disparate impacts across TBL dimensions, emphasizing the need for nuanced policies. Policymakers are urged to integrate stringent environmental criteria into investments, encourage green FDI, devise targeted social policies, and prioritize waste reduction and clean energy transition for responsible critical minerals extraction in the region.

Ekonomik ve finansal gelişme Katar'daki CO2 emisyonlarını azaltabilir mi?

This study investigates the impacts of economic and financial development on carbon emissions in Qatar between 1975 and 2018 by analyzing the results of the ARDL and VECM tests. We do so by considering two model specifications, Model 1 and 2, considering CO2 emission is a dependent variable. In Model 1, economic growth and its square are considered as independent variables to test the basic Environmental Kuznets Curve (EKC) hypothesis. The results provide evidence to confirm the EKC hypothesis for Qatar. In Model 2, various economic and financial variables are specified as regressors, and all the independent variables have a statistically significant impact on CO2 emissions at a 1% level. The coefficient of real income per capita implies that an increase in income will increase carbon emissions by 72%. On the other hand, financial development's carbon elasticity indicates that an increase in financial development will decrease CO2 emissions by 32%. The carbon elasticity of foreign trade signifies that an increase in trade will decrease CO2 emissions by 33%.

Impact of transportation infrastructure and urbanization on environmental pollution: evidence from novel wavelet quantile correlation approach.

In terms of achieving sustainable development goals (SDGs), the developing economies are facing many issues, and one of the key issues is environmental degradation. Being a developing economy, Pakistan is also experiencing thought-provoking impacts of global warming and still far away from the ideal track of sustainable development. For addressing environment-related issue and achieving the targets of SDGs, a policy-level reorientation might be necessary. In this view, this study investigates the impact of economic growth, transport infrastructure, urbanization, financial development, and renewable energy consumption on CO2 emissions by using the data of Pakistan during 1990-2020. For this purpose, we use novel wavelet quantile correlation approach. The empirical results of wavelet quantile correlation approach demonstrate that economic growth, transport infrastructure, urbanization, and financial development are responsible for environmental pollution. Whereas, result also claims that renewable energy consumption is a useful tool for reducing environmental pollution in Pakistan. Moreover, the results of FMOLS approach show that 1% increase in economic growth, transportation infrastructure, urbanization, and financial development increases CO2 emissions by 0.240, 0.010, 0.478, and 0.102%, respectively. However, 1% increase in renewable energy usage reduces CO2 emission by 1.083%. Based on the empirical outcomes, this study proposes comprehensive policy framework for achieving the targets of SDG 7 (clean energy), SDG 8 (economic growth), SDG 11 (sustainable cities and communities), and SDG 13 (climate action).

From Borrowing to Growth: Ghana’s Public Debt Strategy within its Financial Development Trajectory

Purpose: The study examined the implications of Ghana’s soaring public debt on its financial development, specifically its banking behaviour. Given Ghana’s alarming public debt of 78.3% of GDP by 2022 and previous periods of high public debt correlating to global economic downturns, understanding this relationship is vital for both local and international policymakers.
 Methodology: The research employs annual growth rates of various financial development indicators (e.g, Ease of Doing Business Index and Digital Transaction Index) and measures public debt using the Public Debt-to-GDP Ratio. Advanced econometric methods were used to ensure data accuracy, including cointegration, error correction models, and tests like Dickey-Fuller, Augmented Dickey-Fuller, and Sargan-Rhargava Durbin-Watson.
 Findings: The ADF test confirmed the stationarity of all study variables. Cointegration tests show a long-term equilibrium relationship among the variables. In the short run, a positive and significant relationship exists between variables such as Domestic Bank Intermediation, Financial Development, and Public Debt. Regression outcomes indicate that as Public Debt escalates, there’s an associated increase in Financial Development in Ghana.
 Implications: These findings reveal that despite the potential pitfalls of high public debt, a complex dynamic exists where increasing public debt positively correlates with financial development in Ghana’s short run. This insight can be valuable for policymakers in balancing infrastructural investments, social programs, fiscal sustainability, and financial growth, especially for developing nations facing similar debt scenarios.
 Originality: This study offers a unique, in-depth three-decade analysis (1992-2022) on the relationship between Ghana’s public debt and banking behaviour. It is an empirical precedent for other nations to understand the intricate relationships between public debt and financial growth.

A focus on Ghana's sustainable development: Examining the interplay of income inequality and energy poverty

This study investigates how income inequality influences energy poverty alleviation in Ghana as it seeks to achieve a sustainable economy. Employing the Granger causality test on a dataset from 1990 to 2021, the results show that both Gini post-tax and post-transfer (Income inequality-ll1) and Gini pre-tax and pre-transfer (Income inequality-ll2) Granger-cause access to electricity and rural area access to electricity. Urban area access to electricity Granger-causes Gini post-tax and post-transfer. Similarly, an FMOLS test was carried out to introduce some controlling variables and results showed that GDP, trade liberation, urbanization, population growth, and financial development increase income inequality and access to clean fuels and technology, as well as access to urban energy, have a substantial impact on economic disparity. In addition, GDP, financial development, energy intensity, industrialization, trade liberalization, urbanization, population rise, and FDI all have varying implications on energy poverty. These results imply the need to include energy poverty reduction measures within income inequality reduction policies to enhance not just access to today's cutting-edge energy but also affordability to the minimal income receivers. Other reforms and levies on electricity consumption options in renewable energy support can contribute to addressing income inequality and energy poverty issues in Ghana.

Unraveling the non-linear impact of financial development on environmental sustainability: insights from developing countries agreeing the accord.

This study delves into the intricate relationship between financial development and environmental sustainability by considering the role of the Paris Agreement in the context of developing countries. By employing advanced econometric techniques method of moment quantile regression (MMQR) and considering a period spanning from 1996 to 2021, this research unravels the non-linear impact of financial development on environmental degradation while considering population and GDP as control variables. The study reveals an inverted N-shaped relationship between financial development and environmental degradation, indicating that environmental degradation (ED) decreases as financial development increases. However, this is followed by a rise in ED before eventually witnessing a further decline. Additionally, the study highlights the positive correlation between GDP and population with ED across all quantiles, with a more pronounced impact observed in higher quantiles. Furthermore, the coefficient of the Paris Agreement demonstrates its effectiveness in decreasing environmental degradation, particularly at higher quantiles of ED. The findings of this study hold practical implications for policymakers, emphasizing the importance of designing and implementing coherent environmental and economic policies in developing countries. This study contributes to understanding the complex dynamics between financial development and environmental sustainability, offering valuable insights for fostering sustainable development pathways.

Dynamicity and nonlinearity in the association between different facets of financial development and macroeconomic volatility: evidence from the World Economy

ABSTRACT This paper attempts to explore dynamicity and nonlinearity in the association between financial development and macroeconomic volatility, considering different aspects of financial development. The data to this end comprises a panel of 98 countries from 1991 to 2016. This paper uses an objective trichotomous development taxonomy to classify the countries according to their overall financial development and income. Dynamic panel regressions ensure that the role of overall financial development in smoothing macroeconomic volatility dwindles as the level of overall financial development increases. Overall financial development begins to amplify volatility after a certain point. Other aspects of financial development also affect volatility in a similar fashion. Nonlinear estimation results show that most of the measures of financial development are associated with macroeconomic volatility in a U-shaped manner. On the contrary, we find an inverted U-shaped association between financial institution efficiency and macroeconomic volatility. The findings are found to be robust to an alternative country classification system based on income and an alternative measure of volatility. To minimise macroeconomic volatility, policymakers should try to increase financial institution efficiency beyond its threshold point and keep all other aspects of financial development at their optimal level.

Spatial analysis of carbon emission effect of financial development in Africa: The role of energy and socioeconomic factors

The need to mitigate global warming has led policymakers and other stakeholders to see further understanding of the driving forces behind CO2 emissions. Financial development has been identified among the most influential factors. However, its importance has not been well explored in developing countries, especially in Africa. Several studies have explored the CO2 emissions-effects of financial development in Africa but focused on the temporal aspect and overlooked the spatial dependence which has the potential to influence the estimated marginal effects. In so doing, they consider each country as an island which tends to suggest that there are no spatial spillover effects that could originate from countries’ proximity. In this study, such an inaccurate assumption is relaxed by deploying a spatial Durbin model to explore the spatial dependence in the financial development-CO2 emissions nexus for 52 African countries between 1995 and 2017. Our results reveal a significant positive direct effect (0.020) on financial development in a given country and a significant positive indirect effect (0.074). Thus, our estimated marginal effects show a positive and significant total effect (0.095), indicating that a 1% increase in financial development will result in a net increase of CO2 emissions of about 0.095%. This finding implies that financial development contributes negatively to the surge of CO2 emissions in Africa. While the environmental Kuznets curve hypothesis is validated in the continent, renewable energy utilization is found to posit significant environmental effects. This finding is crucial to policymakers as it stands as a reminder about the role of the neighbourhood in designing and implementing environmentally friendly policies that aim at reducing pollution in Africa.

Testing the resource curse hypothesis: The dynamic roles of institutional quality, inflation and growth for Dragon

In the recent time period, we have observed a great deal of interest from different stakeholders to discuss regarding the credibility of the resource curse/blessing assumption for so many obvious reasons, including that economies and policy practitioners are eager to reap the benefits of natural resources to increase economic prosperity. On the same lines, this analysis confabulate the credibility of resource curse assumption in presence of two most prominent economic indicators, institutional quality and inflation, which are essentially interconnected with financial development in developing nations. Our present analysis is grounded upon a developing economy - China - and will serve as a stepping stone for the similar economies. The time period we have considered for empirical estimation is from 1990 to 2020. The empirical analysis, after estimations elucidates that in the far off time frame, natural resources are adversely interconnected with financial growth, i.e., resource course hypothesis is proved. However, quality of government is favorably associated with financial development and inflation is hampering the financial development. Thus, policymakers should adapt those polices which discourage the over utilization and exploitation of natural resources and also to encourage the political reliability and fiscal decentralization in the Chinese economy also bring a positive increase in financial development.

Unintended consequences: How does digital inclusive finance affect migrants' urban settlement intentions?

Existing studies focus more on the benefits of digital inclusive finance in promoting employment, raising people's income, and boosting consumption, but have relatively ignore the widespread existence of the digital divide between urban and rural areas and among different groups in China and the unintended consequences it produces. This study first adds learning costs to the traditional population migration theoretical framework, confirming that the impact of digital inclusive finance on the urban settlement intention of the migrants has an inverted U-shape, as the level of digital inclusion financial development increases, the intentions of the migrants to settle down first rises and then falls. Empirical results support this finding. A further investigation shows that the economic dividends and learning cost associated with digital inclusive finance underpins such an inverted-U relationship. Moreover, individual endowment is an important factor affecting learning cost. The negative effect of digital inclusive finance on urban settlement intention is more obvious for rural migrants with relatively inferior endowment. Finally, we also find that education can mitigate this negative effect by reducing the related learning costs. This study provides strong evidence that in the rapid development of digital inclusive finance, migrants, especially those with insufficient endowments face greater migration costs.

Do Economic Growth, Financial Development, and Renewable Energy Consumption affect Environment Pollution? Empirical Evidence from South Asian Countries

The main motive of this paper is to know the impact of economic growth, financial development and renewable energy consumption on environment pollution in South Asian countries (SAC) and also tries to show the impact of exports and population growth on environment pollution during the period from 1990 to 2014 by applying panel ARDL Model. In our study it is found that one unit increase in financial development (FD) tends to increase 0.3356 units of CO2 emissions (CE) in selected South Asian countries. Renewable energy consumption (RE) significantly decreases the environmental pollution, where one unit increase in the RE will decrease 0.5878 units of CO2 emission. The “error correction term (ECT)” stands the adjustment is 37% to reach a long-term balance in South Asian countries (SAC). Since there is a significant positive liaison of financial development and environment pollution, the key contribution of this study requires that policy makers should consider green financing or sustainable financial development to mitigate environment pollution.

How do financial development and environmental policy stringency affect renewable energy innovation? The Porter Hypothesis and beyond

Multiple studies have examined the effects of financial development on renewable energy consumption, but little is known about its impact on renewable energy innovation. The validity of the Porter Hypothesis (PH) in renewable energy industries—that is, whether stricter environmental policies promote innovation—remains unclear. This study explores the effects of financial market development and environmental policy stringency on renewable energy innovation, as well as whether renewable innovation differs with levels of stringency of environmental policy and levels of development of the financial market. We apply a nonlinear panel threshold model to the 37 member countries of the organization for Economic Co-operation and Development (OECD) from 1990 to 2019. The results show that as financial development increases, its impact gradually declines, and that as environmental policy becomes more stringent, its impact rapidly increases. This finding implies that financial development is associated with greater increases in renewable innovation in countries with a medium level of financial development, and that stricter environmental policies can be used by OECD countries to increase innovation. This study therefore confirms the validity of the PH as well as the financial development effect on renewable innovation in OECD countries. It also finds that international oil prices and the level of research and development expenditure have significantly positive effects on renewable innovation. Policy suggestions for developing financial markets and increasing policy stringency are proposed.

Examining the Effect of Privatization on Renewable Energy Consumption in the Digital Economy under Economic Patriotism: A Nonlinear Perspective

This study is an effort to investigate the asymmetric effects of privatization and the digital economy on renewable energy consumption. The nonlinear quantile autoregressive distributed lag (QARDL) technique is used to estimate short and long-run analysis. Findings of the nonlinear QARDL model posit that the long-run positive shock in privatization promotes renewable energy consumption by increasing renewable energy consumption, while the long-run negative shock in privatization demotes renewable energy consumption by reducing renewable energy consumption. In the short run, the positive shock of privatization does not significantly impact renewable energy consumption, while the negative shock of privatization reduces renewable energy consumption. Moreover, information and communications technology (ICT), economic development, and financial development increase renewable energy consumption in the long run; however, in the short-run only financial development helps increase renewable energy consumption. The Wald test confirms the asymmetric impact of privatization on renewable energy consumption only in the long run. Based on these results, policymakers should thus take into account both positive and negative shocks in privatization when developing policies to encourage pro-environmental behavior.

Energy productivity and environmental quality in Sweden: Evidence from Fourier and non‐linear based approaches

This study aims to examine the asymmetric and long‐run effects of energy productivity on the quality of the environment in Sweden. It covers the time series data from 1990Q1 to 2019Q4. Sweden was the first country in 1972 to host a United Nations conference on the environment. Unlike other countries in Europe, Sweden is cognizant of an innovative environment; it hopes to achieve 100% of its electricity from renewable sources by 2040 and lead the way towards a low‐carbon community. The novelty of this study lies in the thorough analysis of how energy productivity affects the quality of the environment in Sweden while controlling for economic growth, trade openness, and financial development utilizing the non‐linear ARDL approach and other robust econometric techniques. Precisely, (i) results indicate non‐linear and asymmetric effects of the variables over long‐term horizons; (ii) energy productivity benefits the environment by lowering CO2 emissions (CO2E) in the long term; (iii) a growth in trade openness positively impacts CO2E; (iv) an increase in financial development and economic growth without eco‐friendly protocols contribute to an increase in CO2E. The findings of this study support the economic theory that energy productivity can stimulate green living and green economic growth. We recommend that policymakers in Sweden invest in energy productivity, pursue R&D that embraces cleaner technologies, and prioritize cleaner, cross‐cutting eco‐friendly policies to combat climate challenges and achieve the long‐term climate policy goals of the EU.

The Symmetric and Asymmetric Effect of Remittances on Financial Development: Evidence from South Africa

Investigating the remittance-financial development relationship is an ongoing endeavor among economists and policy makers. Building and improving on the existing work, this study considers the possibility that the relation between remittances and financial development is potentially asymmetric. This study applies the linear ARDL and captures the possibility of an asymmetrical relationship by applying the non-linear Autoregressive Model (NARDL). Using NARDL, an attempt is made to estimate the short-run and long-run asymmetric responses of financial development through positive and negative partial sum decompositions of changes in remittances. To assess the robustness of the ARDL and NARDL estimates, a battery of long-run robustness tests were employed, including the linear and nonlinear versions of the fully modified ordinary least squares (FMOLS). Annual data series from 1980 to 2017, derived from the World Development Indicators, Fred Economic data and Penn World Tables were used for this study. The ARDL results reveal a positive and significant impact of remittances on financial development, whereas NARDL estimations suggest a both positive and negative shock of remittances on financial development in the long run: a percentage (%) increase in the remittances brings about 0.121568 percent increase in financial development, whereas a one-percent decrease in remittances produces a 0.33363 percent decrease in financial development.