Role Of Financial Development Research Articles

Does the Moderating Role of Financial Development on Energy Utilization Contributes to Environmental Sustainability in GCC Economies?

This present research examined the association among carbon emissions, financial development, economic growth, natural resources, and energy usage in GCC nations within the environmental Kuznets curve framework by applying the datasets between 1995 and 2019. It used some empirical approaches, including second-generation unit roots and cointegration methods and method of moments quantile regression (MMQR). We detected a cointegrating interconnection between carbon emissions and financial development, energy usage, economic growth, natural resources, and squared of economic growth in the long term. Furthermore, the findings of the MMQR reveal that economic growth, financial development, energy usage, and natural resources degrade the environment, as well as proving the presence of the EKC hypothesis. Moreover, the results also demonstrated that financial development greatly moderates energy usage in order to attain environmental sustainability. Furthermore, the fixed-effect ordinary least squares, fully modified ordinary least squares, and dynamic ordinary least squares were also used in the study as a soundness check of the MMQR approach. The path of causality moves from financial development, economic growth, and squared of economic growth to CO2 emissions. Lastly, the causality direction runs from carbon emissions to energy usage. Based on these findings, the energy mix of the region must be revised by ensuring the promotion of sustainable energy sources and other energy-efficient technology in order to attain the quality of the environment.

Financial Development and Female Labor Income Share: Evidence from Global Data

While there has been sizable literature on the effect of financial development on growth, inequality, and poverty, there are fewer studies on its impact on female labor force participation or women’s wellbeing. Using a novel dataset, this paper investigates the association between the dimensions of financial development and female labor income share for 156 countries for the period of 1991-2019 to contribute to the literature on the role of financial development in improving women’s wellbeing. The findings show that financial development is positively associated with women’s income in high-income countries but not in low-income countries. The main implication of the study is that financial development in poor countries is not sufficiently inclusive enough to create economic opportunities for women.

Dampen macroeconomic volatility: a useful role of capital controls on international trade

ABSTRACT Capital controls may adversely affect international trade. This study aims to demonstrate the usefulness of capital controls for reducing macroeconomic volatilities and then mitigating their negative effects on international trade. Using quarterly data, we applied a dynamic panel approach to a sample of 26 countries over the period 2010–2020. By diversifying the estimation techniques and using different capital control indexes, our results show that a capital control policy supports international trade and reduces exchange rate and interest differentials volatilities. The impact of capital controls is asymmetric when considering the role of financial development, the cyclical behavior of capital controls, and the simultaneous use of macroprudential policies. This study raises some policy implications, particularly, the necessary coordination and adjustment of the macroeconomic policies and the importance of targeting long-lasting controls when applying a restrictive policy.

Role of Financial Development, Green Technology Innovation, and Macroeconomic Dynamics Toward Carbon Emissions in China: Analysis Based on Bootstrap ARDL Approach

This study focuses on determining the relationship between carbon emissions, financial development, population, green technology innovation, energy Consumption, and employment rate from 1980 to 2019 in China. The study applies the unit root test, bootstrapped ARDL cointegration, and the Granger causality to examine the data properties and association between the variables of interest. Empirical findings indicate that green technology innovations and financial development play a major role in environmental protection, specifically in the long run. In contrast, energy consumption and employment rate are more vulnerable to protecting the natural environment in China. On the other side, the findings under short-run estimation do not support the role of green technology innovation in reducing environmental degradation. Based on the empirical findings, it is suggested that a strong financial system would help to achieve long-run sustainability and the emissions mitigating effects can be further strengthen by implementing green technologies across industries. In doing so, strict environmental regulations can regulate the financial and traditional industrial sector in adoption of energy efficient technologies.

Analysis of the dynamics of environmental degradation for 18 upper middle-income countries: the role of financial development

This study aims at investigating the dynamics of environmental degradation by focusing on the financial development-CO2 emissions link. In this purpose, economic growth, renewable energy consumption, trade openness and urbanization are integrated into the CO2 emissions model as other explanatory variables. In this study, 18 upper-middle-income countries with the highest growth rate in the world are examined for the period 1990-2018 by AMG method, which considers the cross-sectional dependence and slope heterogeneity. In addition, the causal linkages between variables are explored by Dumitrescu-Hurlin panel bootstrap causality technique. As a result of the study, it is found that financial development and renewable energy consumption reduce CO2 emissions. In addition, it is determined that economic growth, urbanization, and trade openness deteriorate the environmental quality. As a result of causality analysis, while one-way is found from renewable energy consumption to CO2 emissions, a bidirectional causality is observed between financial development and CO2 emissions. Empirical findings provide several policy suggestions that decrease CO2 emissions in these countries.

The Sustainable Environment in Uruguay: The Roles of Financial Development, Natural Resources, and Trade Globalization

As the world continues to be a globalized society, there have been variations in environmental quality, but studies including trade globalization into the environmental policy framework remain inconclusive. Therefore, employing the time series dataset of Uruguay over the period between 1980 and 2018, the main objective of this current study is to investigate the effect of trade globalization, natural resources rents, economic growth, and financial development on carbon emissions. By employing the bounds testing procedures in combination with the critical approximation p-values of Kripfganz and Schneider (2018), the Autoregressive Distributed Lag estimator, and spectral causality test to achieve the goal of this research. The outcomes of the bounds test confirm a long-run connection between carbon emissions and these determinants. Moreover, from the outcome of the Autoregressive Distributed Lag estimator, we observed that trade liberalization is found to exert CO2 emissions in the long and short run. The economic expansion in Uruguay imposes significant pressure on the quality of the environment in the long and short run. The abundance of natural resources significantly increases environmental deterioration in the long and short run. Furthermore, we uncover that financial development does not impact environmental deterioration in Uruguay. Finally, the outcome of the spectral causality test detected that trade globalization, economic growth, and natural resources forecast carbon emissions with the exclusion of financial development. Based on the outcome, this study suggests that policies should be tailored towards international trade must be reassessed, and the restrictions placed on the exportation of polluting-intensive commodities must be reinforced.

Toward a sustainable environment and economic growth in BRICS economies: do innovation and globalization matter?

Over the last few decades, environmental deterioration has accelerated significantly. Environmental degradation has been a subject of research across the world because of its impact on billions of people. However, there has been no international agreement on lowering the utilization of energy and CO2 emissions (CO2), while demand for fossil fuels grows in emerging economies. On the other hand, the recent COP26 summit brought all parties together to accelerate action toward reaching the goals of the Paris Agreement and the UN Framework Convention on Climate Change. Although previous research shows that international trade promotes positive socioeconomic outcomes, other experts argue that it contributes to natural resource shortages and ecological deterioration. Thus, the current research considers the effect of international trade, renewable energy use and technological innovation on consumption-based carbon emissions (CCO2), coupled with the role of financial development and economic growth in the BRICS economies between 1990 and 2018. Moreover, this research utilizes the common correlated effects mean group (CCEMG), augmented mean group (AMG) and Dumitrescu and Hurlin (2012) causality methods to assess these interrelationships. The study findings reveal that renewable energy use, exports and technological innovation mitigate CCO2, whereas economic growth and imports trigger CCO2 in the BRICS economies. The panel causality outcomes also reveal that all the variables except financial development can predict CCO2 emissions. Based on the study findings, we recommend the adoption of policies, regulations and the development of legislative frameworks that promote technological innovation and the shift toward sustainable energy.

The Effect of Investment in Education on China’s Economic Growth: The Role of Financial Development

Earlier studies have focused on how education investment affects economic growth in different countries, namely developed and developing countries. The conclusions have been ambiguous and one of the dominant factors leading to such variation is the omission of financial development indicators. The present paper makes use of panel date from 2005 to 2019 on 31 provinces of China to examine how financial development can influence the relationship between education investment and economic growth. The findings show that financial development does not facilitate the impact of education investment on economic growth in wealthier regions. However, for poorer provinces with GDP per capita below the average, financial development as proxied by the ratio of total loans and total deposits in the financial system to GDP, respectively, can indeed enhance the effect of education investment on economic growth. Such enhancement is valid even when the proxies for education investment and financial development respectively pose negative effect on economic growth. Credit expansion and savings increase may facilitate government expenditure in education, which in turn promotes economic growth in relatively poor provinces to a greater degree than does the relatively wealthy provinces. Financial development strategy should be targeted to poorer provinces with below-average economic growth to facilitate growth-promoting educational financing.

How does information and communication technology affect energy security? International evidence

Using the panel data of 66 countries for the period 1996–2019, the current research explores the influences of information and communication technology (ICT) on energy security. We consider the role of financial development, human capital and technological development to explore the channels through which ICT influences energy security. Our empirical results reveal the adverse impact of ICT on energy demand and energy security. In addition, ICT mainly affects energy security through financial development and technological progress. Although human capital can significantly affect energy security, ICT cannot affect energy security through human capital channels. Furthermore, using economic risk as the threshold variable to study the link between ICT and energy security, we note that the impact of ICT on energy security is inverted U-shape with an improvement of economic risk. Specifically, ICT tends to increase the energy security in the lower stages of economic risk, while it weakens energy security reaching a certain level of said risk. In a similar vein, if financial risk is considered as the threshold variable, which is same as economic risk. Finally, the impact of ICT on energy security shows an upward trend in fluctuation with the passage of time. Our results provide policy implications to governments and future researchers.

Sustainable environment in West Africa: the roles of financial development, energy consumption, trade openness, urbanization and natural resource depletion

Sustainable environment in West Africa: the roles of financial development, energy consumption, trade openness, urbanization and natural resource depletion

Impact of Financial Innovation and Institutional Quality on Financial Development in Emerging Markets

Financial innovation and institutional quality play a key role in financial development. This study investigates the impact of financial innovation and institutional quality on financial development in an emerging markets setting. We used the sample of 17 emerging markets based on the availability of data from the period 1990–2020. Data were extracted from the World Development Indicator database. In this study, panel unit root, fully modified ordinary least squares and Pedroni Integration tests were applied to analyze the data. We find that financial innovation and institutional quality are significantly and positively related to financial development. Better financial innovation increases financial development, whereas low institutional quality in an emerging market can deteriorate financial development.

Natural Resource Rents and Social Capital Interaction: New Evidence on the Role of Financial Development

The varied opinions on financial developmental impacts on growth in different economies have been the subject of considerable debates among economists during the last two decades, especially in natural-resource-rich countries. However, the role of financial development on a crucial channel of growth, i.e. social capital, has been neglected. Unlike previous studies, the level of income in resource-based economies has been considered an important factor influencing the way financial development affects social capital-resource rents’ interactions. Thus, in this paper, the impact of financial development as an infrastructure to turn natural capital into social capital has been investigated in two groups of resource-abundant countries using a panel data model during 2009:Q1-2016:Q4. The empirical results in the case of high-income economies show that a high level of financial development can ensure resource rents, positively influencing social capital. However, findings indicate an adverse impact of natural resource rents on social capital in medium-income countries.

The role of Financial Development and Technological Innovation towards Sustainable Development in Pakistan: Fresh insights from consumption and territory-based emissions

• Inspecting financial development, economic globalization and technological innovation with consumption and territory-based emissions. • Employed novel dynamic autoregressive distributed lag (ARDL) model. • Frequency domain causality is applied for the short-medium and long-run links. • Financial development and economic globalization have a positive effect on the environment. • Technological innovation reduces consumption and territory-based emissions. In the contemporary world, environmental problems are a major human concern. The status of the environment and its management are prerequisites for every country's sustainable development. Following the Paris Climate Summit (COP21), Pakistan has amplified its efforts to address environmental issues. In this pursuit, this study aims to provide a new perspective by examining the impact of economic globalization, financial development, energy use, economic development and technological innovation with consumption and territory-based emissions from 1990Q1 to 2019Q4 in Pakistan. The study used Dynamic Autoregressive-Distributed Lag (ARDL) simulations and Frequency Domain Causality (FDC) methods. The empirical evidence reveals that financial and economic development stimulate both consumption and territory-based emissions in the short and long run. However, energy use intensifies consumption and territory-based emissions only in the long run. Also, in the short-run economic globalization adversely affects consumption and territory-based emissions while in the long run rises just consumption-based emissions. However, technological innovations decrease both emissions substantially in the long term. Finally, FDC outcomes endorsed the hypothesis. The study suggests that policymakers discourage non-renewables and increase renewable energy use to decrease consumption and territory-based emissions. The results would help Pakistan reach more eco-friendly energy technologies and a more sustainable energy environment to accomplish SDG 7 and 13 goals.

Diaspora income, financial development and ecological footprint in Africa

ABSTRACT This study examines the impact of diaspora income on the ecological footprint of 22 African countries. Methodologically, we used the robust type fixed-effect model, fixed effect instrumental variable regression, method of moments quantile regression (MMQR), and the heterogenous granger causality test. There are four main important findings from this empirical study: (1) diaspora income has a negative and statistically significant impact on ecological footprint. (2) financial development plays a crucial role in mitigating the environmental degradation impact of diaspora income, and African countries must achieve an annual estimated threshold of financial development before they could reap the environmental quality impact of diaspora income. (3) the role of financial development in reducing the environmental degradation impact of diaspora income is less for higher polluting countries in Africa. (4) unidirectional causality from diaspora income to ecological footprint. In ensuring a sustainable environment, we recommend that African governments provide a tax credit to the recipient of the diaspora income who invests in environment-friendly technologies.

Global uncertainty, economic governance institutions and foreign direct investment inflow in Africa

Based on the fact that Africa has not fared well in attracting foreign direct investments in the last decade compared to other regions of the world, especially during periods of high uncertainty occasioned by one crisis or the other, this study investigated: the impacts of global uncertainty and economic governance institutions on FDI inflow to Africa; the moderating effect of economic governance institutions on global uncertainty-FDI relationship in Africa; and other significant drivers of FDI inflow to Africa. The study used the system GMM modeling framework and a panel of 46 African economies over the period 2010–2019. The results indicate that global uncertainty has a significant dampening effect on FDI inflow to Africa, and economic governance institutions on the continent amplify this effect rather than mitigate it. The results further indicate that natural resource endowment, market size, and initial FDI inflows are robust drivers of FDI inflows to Africa, while the roles of financial development and trade openness remained muted. Overall, the study concludes that policymakers in Africa should take urgent steps to strengthen the quality of economic governance institutions as a means of mitigating the excruciating effect of global uncertainty on FDI inflows to Africa.

Poverty Reduction and Economic Development in Nigeria

Extant literature shows that the incidence of poverty is one of the biggest threats to human development, however, not many studies have acknowledged the important role of financial development and access to internet services in reducing the incidence of poverty to enhance economic development. Therefore, this study examined the relationship between poverty reduction and economic development in Nigeria using data for the period of 2003Q1 to 2019Q4. The data for this study is collected from the United Nations Human Development Reports and the World Bank’s World Development Indicators Database. Using the Autoregressive Distributed Lag Model-Error Correction Modelling (ARDL-ECM) estimator, the results of the ARDL long-run estimates showed that poverty reduction, financial development, economic growth, trade openness, and the internet had positive and significant effects on human development. Furthermore, urbanisation had a negative but non-significant effect on human development, indicating a negative coefficient and exact p-value of 0.064735 and 0.8221. Meanwhile, the results of the ARDL short-run estimates except for urbanisation are consistent with the long-run results. Besides, the Error Correction Model (ECM), which indicates the speed of adjustment back to long-run equilibrium level after a short-run disturbance, showed a coefficient which is negative (-0.145327) and significant at 1% level of significance, implying that about 15% of any disequilibrium in the short-run is adjusted back to the long-run equilibrium in each quarter. Based on the long-run estimates, the study concludes that poverty reduction is important for economic development in Nigeria. It is, therefore, recommended that the poverty reduction strategies of the Nigerian government should not be pursued in isolation but rather in connection with access to financial and internet services, among other things.

Monetary policy effectiveness in Africa: the role of financial development and institutional quality

PurposeThis study aims to provide empirical evidence of the pass-through effect of monetary policy on bank lending rates vis-à-vis the potential moderating effects of financial sector development and institutional quality in Africa.Design/methodology/approachThe study uses robust fixed effects panel data estimation techniques and data from 1990 to 2017 across 37 countries in Africa.FindingsThe results show that financial development aids in the effectiveness of monetary policy transmission. A decomposition of financial development into financial institution development and financial market development shows that financial institutional development is more influential with regard to effectiveness of the interest rate pass-through compared to financial market development. This study again shows that improvements in the quality of institutions reduced lending rates in African economies.Practical implicationsThe findings present relevant policy implications regarding effective transmission of monetary policy, by linking the pursuit of institutional quality, characterized by the control of corruption, political stability, regulatory quality, rule of law and the voice of accountability and development of financial institutions with lending rates and ultimately the demand for growth capital.Originality/valueThis study contributes to the literature on the factors influencing the effectiveness of monetary policy. This study considers financial sector development and institutional quality as conduits to monetary policy effectiveness in developing African countries.

The roles of financial development and urbanization in degrading environment in Africa: Unravelling non-linear and moderating impacts

The detrimental effects of carbon dioxide emissions (CO2) and ecological footprint (EF) on the ecosystems, climate change and global warming necessitate the adoption of various methods to ameliorate them. An insight into the root causes of CO2 and EF is fundamental for policy decisions on environmental sustainability. Though some scholars have shown some drivers of CO2 and EF, the non-linear and moderating impacts of financial development (FIN) and urbanization (URB) in degrading the environment in Africa has not been thoroughly investigated. Consequently, the purpose of this research is to examine the non-linear roles of FIN and URB in degrading the environment with emphasis on CO2 and EF in a sample of 31 African nations. It also determines the roles of FIN and URB in moderating the environment-energy nexus It utilizes empirical techniques that accommodate cross-sectional dependency, endogeneity and heterogeneity. The main results indicate that URB has an inverted U-shaped effect on CO2 while FIN has a tenuous U-shaped impact. URB and EF have a U-shaped relationship albeit FIN has a tenuous non-linear impact on EF. Besides, URB plays a mitigating role in the connection between CO2 and energy use whereas FIN plays a detrimental role. Further analysis indicates that FIN cannot moderate the nexus between energy use and EF albeit URB does aggravates the relationship. This research underscores the roles of FIN and URB on the environment in Africa. It notes that the proxy used to measure environmental degradation matters in considering the roles of FIN and URB on environment. As a result, the environmental regulations and energy policies that ignore the roles of URB and FIN may impede the pursuit of sustainable environment and development.

The asymmetric dilemma of renewable energy, financial development, and economic growth: fresh evidence from Pakistan

According to economists, rapid economic growth depends on the active energy system of any country. Through financial development, the latest trend of globalization applies pressure on energy consumption, which eventually validates growth in the economy. Therefore, the role of financial development and renewable energy consumption on economic growth is still being questioned. This paper contributes to this issue by raising concerns about the possible asymmetric links among financial development, renewable energy, and economic growth along with capital and labor. Applying a nonlinear autoregressive distributed lag model, our paper demonstrates that neglecting the involvement of nonlinearities leads to confusing conclusions. Results show that variables of interest have asymmetric impacts in short- and long-runs. Our analysis shows that short- and long-run impacts of renewable energy consumption and financial development on growth vary significantly. Notably, this study finds that renewable energy consumption has a positive and significant impact on economic growth in the short- and long-runs, and financial development has a strong, asymmetric, and positive effect on economic growth in the short and negative effects in long-run. The findings also have important implications for policymakers as well as investors in Pakistan's energy sector.

Innovation and economic performance: The role of financial development

<abstract> <p>This study empirically explores the influence of financial development (FD) in an innovation-growth nexus. Specifically, the study considers how, through FD, innovation impacts countries' export products, export values and national incomes. The system Generalized Method of Moments technique and the dynamic common correlated effect estimator are used on data of 57 economies covering the period 2000 to 2019. First, the findings reveal that, on the full sample, FD and its interaction with R&D expenditure have both short- and long-run effects on economic performance, as they both cause increases in export product, export value and national income. However, within the full sample study, the direct impact of FD is more favorable than the indirect effect. Second, within the developed and the developing economies, the study reveals that FD indirectly influences economic performance by improving the relationship between R&D expenditures and export products, export values and the national incomes of these groups of economies, both in the short- and the long-run. However, considering the developing economies, the findings show that the indirect influence of FD is more favorable than the direct effect. As a result, this study argues that FD is relevant for improving the relationship between innovation and economic performance, for both developed and developing economies. Policymakers should, therefore, ensure efficiency and stability in their financial sector as they engage in R&D activities in order to be able to harness the export-growth benefits of innovation fully. Moreover, policies that ensure sustainable money supply should be encouraged, especially within the developing economies.</p> </abstract>