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The impact of financial development, political institutions, and urbanization on environmental degradation: evidence from 59 less-developed economies

Abstract

This study endeavors to explore the bearing of financial development, political institutions, urbanization, and trade openness on CO2 emanations in a group of 59 less-developed countries, over the period of 1996–2016. In order to estimate environmental impacts of aforementioned series, we used cross-sectionally weighted Estimated Generalized Least Square (EGLS) methodology, Arellano-Bond Generalized Method of Moment (A-B GMM), and Orthogonal-Deviation GMM (O-D GMM). The study finds that financial development, urbanization, composition effect (measured by capital/labor ratio) and energy consumption deteriorate environmental quality. Our results confirmed the prevalence of Environmental Kuznets Curve (EKC) proposition which undertakes upturned-U shape bond amid economic growth and pollution emanations. Furthermore, institutions and foreign trade are found to have beneficial environmental impact. This study suggests resilient institutional reforms and comprehensively integrated environmental quality concerns in financial reforms to help to mitigate pollution emanations and achieve sustained economic growth in less-developed economies.

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Fig.1

Notes

  1. 1.

    Graff Zivin and Neidell (2014)

  2. 2.

    Stern (2013)

  3. 3.

    COP 24 held in Katowice, Poland, from December 2 to December 15, 2018.

  4. 4.

    Stochastic Impacts by Regression on Population, Affluence, and Technology.

  5. 5.

    We grouped low and lower-middle income (WB classification) countries because of their similar characteristics (Yilanci et al. 2019), as well as in line with IMF criteria for less-developed countries (World Economic Outlook 2018) . The number of selected countries is constrained and influenced by data availability.

  6. 6.

    https://data.worldbank.org/indicator , accessed on March 15, 2018

  7. 7.

    Accessed on March 15, 2018

  8. 8.

    CIPS considers cross-sectional dependence while testing stationarity of series.

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Yasin, I., Ahmad, N. & Chaudhary, M.A. The impact of financial development, political institutions, and urbanization on environmental degradation: evidence from 59 less-developed economies. Environ Dev Sustain 23, 6698–6721 (2021). https://doi.org/10.1007/s10668-020-00885-w

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Keywords

  • Financial development
  • Environmental Kuznets curv
  • EKC
  • CO2
  • Pollution
  • Economic growth
  • GMM
  • Political institutions
  • Urbanization