The Interacting Role of Corruption Control in the Relationship Between Financial Development and Ecological Footprint: Evidence from Top Selected African Countries

Abstract

Recent studies suggest that financial development has several implications for the ecological footprint. However, the relevance of corruption control in the nexus between financial development and ecological footprint remains an open question. Owing to the high level of corruption in the leading African economies, domestic credit may not be available to prospective investors for environmentally friendly production. Therefore, this study inspired by the growing threats to environmental quality examines the mitigating effects of financial development and corruption control on the ecological footprint of ten leading African economies. The study also investigated the moderating role of corruption control in the link between financial development and ecological impact. Our study employs the dynamic common correlated effects approach (a second-generation technique) using panel data from 1996 to 2020. Results: The empirical findings of the estimation unveiled that financial development, economic growth, and corruption control intensify ecological footprint, while economic growth square reduces it. The result confirms the U-shaped relationship between economic growth and ecological footprint. The interactive term of corruption control and financial development shows that corruption control significantly moderates the positive impact of financial development on the ecological footprint. These results persist when cross-sectional auto-regressive distributive lag is used to re-estimate the model. Furthermore, Dumitrescu and Hurlin’s causality tests show two-way causality between ecological footprint, financial development, corruption control, and economic growth. The study guides economies to develop policies to enhance financial instruments necessary to help mitigate ecological footprint.