Abstract
This study examines the environmental effects of financial development using a
comprehensive indicator of ecological footprint for a panel of 131 countries from 1971 to
2017. For the empirical analysis, pooled ordinary least squares (OLS), fixed effects
model, random effects model, Driscoll-Kraay (DK) standard errors, and system
generalized method of moments (GMM) are employed. The findings reveal that all
indicators of financial development namely domestic credit to private sector, domestic
credit to private sector by banks, and domestic credit provided by financial sector
significantly help to improve the environmental quality by reducing the ecological
footprint. Comparatively, the effect of domestic credit to private sector is stronger than
other measures of financial development. Similarly, urbanization has been accompanied
by the significant reduction in ecological footprint. In contrast, energy consumption,
foreign direct investment (FDI), and GDP per capita worsen the environmental quality by
increasing the ecological footprint. The study also validates the existence of “pollution
haven hypothesis” for the global economy. Findings of the study have global
implications. In general, financial sector has the potential to support the global efforts
towards environmental protection. However, regional or country specific experiences can
differ depending upon the financial sector priority towards environmental protection.
Muhammad Tariq Majeed, Maria Mazhar. (2019) Financial Development and Ecological Footprint: A Global Panel Data Analysis, Pakistan Journal of Commerce and Social Sciences, Volume 13, Issue 2.
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