The criticality of financial development and energy consumption for environmental sustainability in OECD countries: Evidence from dynamic panel analysis

Abstract

This study explored whether financial development and energy consumption affect environmental sustainability in Organization for Economic Cooperation and Development (OECD) countries. The empirical evidence used in this study was based on the standard fixed effects and the Arellano-Bover/Bundell Bond dynamic panel approach. Our empirical results demonstrated the importance of a financial development index and energy efficiency for reducing carbon emissions and promoting sustainability in the OECD. The mechanism through which financial development affects carbon emissions has been identified as energy consumption and foreign direct investment. Our study recommends that financial development be prioritised alongside investments in energy efficiency to promote environmental sustainability.