Financial development and environmental degradation: Do human capital and institutional quality make a difference?

Abstract

Emerging countries are heading towards economic prosperity; however, the process of development has enhanced their ecological footprint. Therefore, to safeguard the environment, it is essential to identify the factors that affect the ecological footprint (EF). In this perspective, this study explores the effect of financial development, human capital, and institutional quality on the EF in emerging countries. Furthermore, we explore the effect of financial development on EF through the channel of human capital. In addition, we investigate the role of institutional quality in the financial development-EF nexus. Using the panel data from 1984 to 2017, we employed the cross-sectional autoregressive distributed lag (CS-ARDL) technique to conduct the short-run and long-run empirical analysis. The empirical outcomes unveiled that financial development degrades the ecological quality by raising the EF. The findings further unfolded that human capital and institutional quality reduce the EF. Moreover, financial development fosters environmental sustainability through the channel of human capital. Additionally, institution quality reduces the negative ecological impacts of financial development. The causality analysis suggested that any policy related to financial development, human capital, and institutional quality will affect EF but not the other way round. Based on these findings, emerging economies should promote environmental sustainability by promoting human capital and effectively using financial resources.

Clean energy consumption, economic growth, and environmental sustainability: What is the role of economic policy uncertainty?

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Does Tourism Induce Sustainable Human Capital Development in BRICS Through the Channel of Capital Formation and Financial Development? Evidence From Augmented ARDL With Structural Break and Fourier-TY Causality

“…Considering the existing literature focusing on HCD, it is apparent that two vines of evidence were available: the role of HCD in various macro aspects and the critical determinants of HCD in the economy. From the growth contributory perspective, human capital has been placed in the apex position among the other macro fundamentals for economic growth (Gebrehiwot, 2014 ; Matthew et al, 2018 ; Qamruzzaman et al, 2020 ), financial development (Nik et al, 2013 ; Khan et al, 2020 ), poverty alleviation (Becker, 1994 ; Adekoya, 2018 ), income inequality (Lee and Lee, 2018 ; Scheyvens et al, 2021 ), and environmental sustainability (Ma et al, 2017 ; Ahmad et al, 2021 ), among others. According to existing literature, HCD is one of the key determinants of economic resource optimization and sustainable development (Trostel et al, 2002 ), which is because human capital accumulation is attributed to economic growth.…”

Assessing the Role of Green Finance and Education as New Determinants to Mitigate Energy Poverty

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