Effect of financial development and institutional quality on the environmental degradation in developed and developing countries

Abstract

Environmental pollutants have become a dreadful problem and burning issues for the present world irrespective of a country who is responsible for it. The objective of the study is to investigate impact of financial development and institutional quality on environmental degradation. The study is based on panel data for developing and developed countries over the time of 1996-2016. For the empirical analysis fixed effect and the random effect is carried out. Results show that institutional quality, economic growth, foreign direct investment, gross primary enrolment, and industrial growth have significant positive effect on corban emissions whereas financial development, population growth, trade openness, urban population and R&D expenditures have significant negative effect on corban emissions. One percent point increase in the index of institutional quality leads towards 0.006 percent points increase in the level of CO2 emissions. One percent point increase in the economic growth lead to increase the CO2 emissions by 0.39 percent points. One percent point increase in inflows of foreign direct investment increase the level of CO2 emissions by 0.016 percent points. One percent point increase in industrial growth leads to a 0.38 percent points increase in the level of CO2 emissions. Furthermore, one percent point increase in the index of financial development leads to 0.05 percent points decrease in the level of CO2 emissions. One percent point increase in urban population leads to almost 0.05 percent points fall in the level of CO2 emissions. Finally, one percent point rise in R&D expenditures leads to decrease in the level of CO2 emissions by 0.068 percent points.