The effect of financial development on environmental quality: a developing country evidence.

Financial development is vital to enhance the inclusive growth of a country in the modern world, and environmental quality, affected by financial development, is also a highly debated topic. Thus, this study attempts to investigate the role of financial development in determining environmental quality in Sri Lanka considering other variables namely economic growth, energy consumption, trade openness, and foreign direct investments. The key econometric tool used for the purpose is the Autoregressive Distributed Lag (ARDL) approach with the data from 1992 to 2021. As per the findings, financial development, economic growth, energy consumption, and foreign direct investments adversely impact environmental quality both in the long-run and short-run. Additionally, trade openness established a negative impact in the short-run only. Importantly, the Environmental Kuznets' Curve (EKC) hypothesis and Pollution Haven Hypothesis are established. Finally, all variables except trade openness confirmed a unidirectional causal relationship with environmental quality. This study recommends that all the modelled variables are vital to enrich the environmental quality in Sri Lanka.

Financial development and environmental quality in developed countries: a systematic literature review.

Studying the effect of financial development on environmental quality has become imperative in the modern world due to the climate change challenges. Hence, this systematic literature review provides a comprehensive overview of the existing body of knowledge on the nexus of financial development and environmental quality in developed countries. Three databases: Web of Science, Scopus, and Google Scholar were used to search the relevant articles in this domain. Finally, 20 journal articles qualified for the systematic literature review based on the pre-defined article inclusion criteria as per the Preferred Reporting Items for Systematic Reviews and Meta-analyses (PRISMA) framework. We found that a range of econometric approaches were used in all examined papers, employing a diverse range of proxy variables to model the relationship between financial development and environmental quality. Overall, the findings of the examined papers imply mixed evidence of this nexus in developed countries. We highlight the knowledge gap in this research domain examining the financial development and environmental quality link from different proxies.