The Threshold level of Institutional Quality in the Nexus between Financial Development and Environmental Sustainability in Nigeria

Abstract

Empirics on the relationship between financial development and environmental sustainability remain ambiguous in the literature. The threshold level at which institutional quality facilitates the relationship between financial development and environmental sustainability in respect to the Nigerian economy is still an open question. This study investigates the threshold level of institutional quality in the link between financial development and environmental sustainability in Nigeria from 1986 to 2020. Times series threshold autoregression technique was applied to determine the threshold level of institutional quality. The result of the threshold revealed that 4.32 is the threshold level of institutional quality in Nigeria. Below the threshold level financial development is not stimulated to improve environmental sustainability but above the threshold level institutional quality stimulates financial development to improve environmental sustainability. This study suggests that institutional credibility and transparency should be enhanced beyond the threshold level to effect the needed change in increasing environmental preservation in Nigeria.