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Does Financial Development Affect Environmental Degradation? Evidence from the OECD Countries
Author(s) -
Halkos George E.,
Polemis Michael L.
Publication year - 2017
Publication title -
business strategy and the environment
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.123
H-Index - 105
eISSN - 1099-0836
pISSN - 0964-4733
DOI - 10.1002/bse.1976
Subject(s) - kuznets curve , cointegration , panel data , economics , environmental degradation , unit root , per capita , sustainability , order (exchange) , econometrics , sample (material) , environmental pollution , sustainable development , macroeconomics , per capita income , empirical evidence , natural resource economics , environmental science , finance , environmental protection , ecology , political science , law , biology , population , philosophy , chemistry , demography , chromatography , epistemology , sociology
In this study, building a simple model that incorporates static and dynamic elements, the relationship of financial development and economic growth to environmental degradation is investigated together with the validation of the Environmental Kuznets Curve (EKC) hypothesis. Our analysis is based on an unbalanced panel data set covering the OECD countries over the period 1970–2014. Our approach thoroughly accounts for the presence of cross‐sectional dependence between the sample variables and utilizes second generation panel unit root tests in order to investigate possible cointegration relationships. The empirical findings do indicate that local (NO x per capita emissions) and global (CO 2 per capita emissions) pollutants redefine the EKC hypothesis when we account for the presence of financial development indicators. Specifically, in the case of global pollution an N‐shape relationship is evident in both static and dynamic frameworks, with a very slow adjustment. Lastly, our study calls for a strengthening of the effectiveness of environmental degradation policies by ensuring sustainability of the OECD banking system in order to drastically reduce emissions. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment