Program and Development Research

Program and Development Research

The impact of financial development and environmental pollution on climate change

Document Type : Original Article

Authors
Zohreh Nasiri 1
Mehdi Hajamini 2
Mohammad Hassan Zare 3
1 MA Student of Economics, Department of Economics, Yazd University, Yazd, Iran.
2 Associate Professor in Economics, Department of Economics, Yazd University Yazd, Iran, (Corresponding author).
3 Assistant Professor in Economics, Department of Economics, Yazd University Yazd, Iran
10.22034/pbr.2024.210262
Abstract
The role of financial development as a prerequisite for economic growth and development on environmental pollution has remained ambiguous. Also, the direct impact of financial development on climate change has merely been investigated in a limited number of foreign studies. Therefore, the current study delves into examining the joint influence of financial progress and pollution on climate change. Data encompassing economic, environmental, and climate change aspects from 1990 to 2021 across 99 developed and developing nations have been collected, and a regression model has been employed utilizing the unbalanced panel technique. The results validate the robust positive impact of the evolution of the banking sector and the relatively weaker positive influence of the growth of the stock market on the mean temperature, serving as an index for climate change. Furthermore, the affirmative correlation between pollution metrics and the mean temperature is affirmed. The differentiation in this association across diverse climates, according to the De Martonne climate classification, highlights its intricate nature. There is a more immediate impact in arid and semi-arid climates compared to the delayed effect observed in humid and semi-humid climates. Consequently, the progression in financial sectors is likely to increase the mean temperature both directly and indirectly (via pollution), particularly in these specified climates. Effective policies need to be implemented to guide the financial sector towards allocating capital to socially responsible industries, environmentally sustainable projects, and eco-friendly production. This should also include avoiding financial support for polluting ventures.
Keywords
Climate change
financial development
banking sector
stock market
pollution
panel data

Subjects

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