Financial Development and Environmental Degradation in Emerging Economies

Abstract

This chapter aims to examine the effect of different financial development indicators (i.e., overall financial development index, banking development index, stock market development index, and bond market development index) on environmental degradation for the period from 1991 to 2013 in 17 emerging economies. For this purpose, the relationship between financial development indicators, real income, urbanization, energy consumption, and ecological footprint is investigated using second-generation panel data methodologies to take into account the cross-sectional dependence. The empirical result reveals that increasing overall financial development index reduces environmental degradation. In addition, it is concluded that stock market development reduces environmental degradation while banking development and bond market development have no significant effect on environment.