Determinants of Environmental Quality in Nigeria: Assessing the Role of Financial Development

Abstract

In this study, we analyze the determinants of environmental quality in Nigeria, focusing on the role of financial development. It is a time series analysis covering the period from 1981 to 2016. The study uses the ARDL bounds testing approach to analyze data on urbanization, per capita income, environmental degradation, energy consumption, trade intensity, and capital investment. We generate the environmental degradation index using principal component analysis (PCA). Empirical results suggest that income, financial development, energy consumption, and trade are significant in explaining environmental quality, whereas investment and urbanization are insignificant in the model. Moreover, we find no causality between the capital investment, financial development, and environmental quality, although urbanization and income unidirectionally cause environmental degradation. Also, there exists a bidirectional causality between energy consumption and environmental degradation. Therefore, to ensure efficient credit allocation to low carbon emitting firms, financial sector operators should adequately screen investment proposals before committing funds to them.

RETRACTED: A heterogeneous analysis of the nexus between energy consumption, economic growth and carbon emissions: Evidence from the Group of Twenty (G20) countries

“…(2017) and Mohiuddin et al. (2016), but supports that of Mesagan and Nwachukwu (2018) and Sekrafi and Sghaier (2018). Additionally, a bidirectional causal liaison between urbanization and CO2 emissions was disclosed.…”

Examining the Relationship Between Energy Consumption, Economic Growth and Environmental Degradation in Indonesia: Do Capital and Trade Openness Matter?

“…Other studies including gross capital formation Zhang et al, 2021). However, studies on the relationship between energy consumption, economic growth, and environmental degradation/CO2 emissions with the inclusion of gross capital formation and trade openness simultaneously are lacking in the existing literature and needs to receive more attention in empirical analysis in the future (for example, Chen et al, 2021;Ling et al, 2015;Ekundayo Peter Mesagan & Nwachukwu, 2018;Rauf et al, 2018;Soytas et al, 2007). One corresponding study by Rauf et al (2018) found that energy consumption, economic growth, and gross capital formation positively influence CO2 emissions, while trade openness and CO2 emissions are negatively connected by applying fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) data from 47 of Belt and Road Initiative (BRI) countries.…”

“…One corresponding study by Rauf et al (2018) found that energy consumption, economic growth, and gross capital formation positively influence CO2 emissions, while trade openness and CO2 emissions are negatively connected by applying fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) data from 47 of Belt and Road Initiative (BRI) countries. Mesagan and Nwachukwu (2018) applied the autoregressive distributed lag (ARDL) model to study the determinants of environmental quality in the period of 1981-2016 for the case of Nigeria. The gross fixed capital formation is used as a proxy for capital investment, environmental degradation index is used to capture the environmental quality.…”

“…There is limited literature on the relationship between energy consumption, economic growth, and environmental degradation/CO2 emissions with the inclusion of gross capital formation and trade openness simultaneously (Chen et al, 2021;Ling et al, 2015;Ekundayo Peter Mesagan & Nwachukwu, 2018;Rauf et al, 2018).…”

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“…Furthermore, several research that used time-series data came to the same result. For example, Moghadam and Dehbashi (2018) observed negative consequences of financial development in Iran, Sehrawat, Giri, and Mohapatra (2015) in India, Mesagan and Nwachukwu (2018) in Nigeria, and Raza and Shah (2018) in Pakistan.…”