TOWARDS A SUSTAINABLE FUTURE: ENVIRONMENTAL

SUSTAINABILITY AND FINANCIAL DEVELOPMENT WITH

INTRODUCTION

Global warming and climate change present formidable challenges to the realization of

Sustainable Development Goals (SDGs), necessitating an immediate and concerted global

response (Stern, 2007). The United Nations has outlined a comprehensive 17-point agenda for

achieving the SDGs by 2030, with particular emphasis on objectives related to accessible and

clean energy, as well as the mitigation of climate change (United Nations Development

Programme, 2015). The literature emphasizes the interdependence between human well-being

and environmental health (Sharpley, 2021). Globally, 24% of mortality instances can be

attributed to preventable environmental factors, as reported by the World Health

Organization. The prerequisites for human survival, encompassing clean air, potable water,

and habitable environments devoid of contaminants and threats, underscore the significance

of environmental sustainability on a global scale. It stands as a critical imperative for the

continued existence of both our planet and its inhabitants, given that contamination of air,

water, and land significantly impedes community prosperity and compromises the quality of

life. Policymakers worldwide are increasingly prioritizing environmental sustainability,

particularly in the context of challenges faced by developing nations in both financial and

environmental domains. An exploration of the interconnections between financial and

environmental indicators is warranted.

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Environmental sustainability is the fulfillment of current and future generations' resource and

service needs without jeopardizing ecosystem health or diminishing biological diversity

(Morelli, 2011). Beyond addressing immediate requirements, it entails ensuring the ability of

future generations to meet their own needs (Shi et al., 2019). The Brundtland Commission

(1987) encapsulates environmental sustainability as the capacity to fulfill present needs while

safeguarding the ability of future generations to meet their own needs. This concept involves

harmonizing the environmental, social, and economic dimensions of development and

promoting the efficient and responsible utilization of natural resources. The contemporary

world grapples with the formidable challenge of environmental sustainability amid escalating

global population growth and economic expansion, exerting mounting pressure on the Earth's

natural resources and ecosystems. This predicament manifests in various environmental

predicaments such as climate change, loss of biodiversity, pollution, and resource depletion,

with far-reaching implications for both the environment and human societies. Climate change,

exemplified by extreme weather events, rising sea levels, and disruptions to agriculture, poses

threats to food security and economic stability. Biodiversity loss disrupts ecosystems,

diminishing our access to vital resources like clean water and medicinal compounds. The

ecological footprint, a measure quantifying the biologically productive land and water

required for resource consumption and waste absorption by a country's populace, serves as an

indicator of the environmental strain induced by human activities.

Financial development encompasses a procedural reduction in information acquisition costs,

contract enforcement, and transactional processes (Levine, 2005). This advancement is

associated with diminished carbon emissions, leading to enhanced environmental quality

(Jalil & Feridun, 2011). The correlation between financial development, heightened energy

utilization, and economic growth emerges from its role in providing households and

businesses with accessible and affordable finance, potentially resulting in increased carbon

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emissions and environmental degradation (Sadorsky, 2010). Notably, financial development

facilitates investment in environmentally sustainable technological innovations, yielding a

technical effect that enhances energy efficiency, mitigates greenhouse gas emissions, and

fosters environmental quality (Tamazian et al., 2009; Zhang, 2011). Moreover, it substantially

contributes to the advancement of renewable energy (Ji & Zhang, 2019) and curtails

environmental degradation by fostering access to eco-friendly production technologies

(Adams

& Klobodu, 2018). Financial inclusion, a pivotal facet of financial development, positively

influences environmental quality by providing firms, particularly small businesses, with

affordable finance for investment in cost-effective and eco-friendly renewable energy

(Innovation for Poverty Action [IPA], 2017). Additionally, financial development plays a role

in mitigating environmental degradation through improved energy efficiency and reduced

energy consumption (Islam et al., 2013). Despite its positive impacts, conflicting perspectives

exist, with some asserting that financial development has a detrimental effect on

environmental quality (Wang et al., 2020).

Financial development's positive implications for the environment lie in its facilitation of the

influx of environmentally friendly technologies, the promotion of research and development,

and investment in cleaner technologies. For instance, increased investment in renewable

energy, driven by financial development, substitutes conventional energy sources and

enhances environmental quality. Simultaneously, it mitigates risk associated with capital and

reduces financial costs by enhancing economic efficiency. While the impact of financial

development on carbon emissions remains debated, it offers developing countries

opportunities for adopting new technologies, fostering clean and environmentally friendly

production, and thereby contributing to global and regional environmental sustainability. The

financial sector assumes a pivotal role in controlling energy pollution by endorsing technical

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developments in energy supply to reduce emissions. However, it may exacerbate

environmental degradation by promoting intensified industrial practices (Jensen, 1996).

Therefore, the actual availability of financial assets through banks and stock markets for

productive activities and project financing networks plays a crucial and positive role in

combatting environmental degradation, primarily by diminishing CO2 emissions.

Recognizing the significance of financial development, the World Bank identifies it as a key

enabler for achieving at least the 7th Sustainable Development Goal (SDG) among the 17.

Financial development influences energy sources through consumption-oriented financing,

enabling firms and households to acquire high-energyconsumption appliances, potentially

increasing CO2 emissions from non-renewable energy sources. Green financing for

renewable energy projects by financial institutions and the renewable energy sector provides

capital from capital markets and well-developed financial institutions, contributing to

sustainable energy practices (Dasgupta et al., 2004).

Globalization, characterized by the profound reduction in transportation and communication

costs and the removal of barriers to the flow of goods, capital, knowledge, services, and

people across borders, signifies the close integration of diverse countries and populations

worldwide (Stiglitz, 2002). The tripartite dimensions of globalization encompass economic,

political, and cultural facets (Dreher, 2006; Gygli et al., 2019). Economic globalization

pertains to the extensive international movement of goods, capital, services, technology, and

information. Political globalization involves the expansion of global governance structures

and the dissemination of political ideas and values. Cultural globalization pertains to the

dissemination of cultural ideas, values, and practices beyond national boundaries.

Disaggregated globalization serves as a moderating force on financial development,

influencing how capital flows and economic activities interact with environmental

sustainability. Notably, globalization and financial development play pivotal roles in driving

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environmental sustainability, with policies directed at achieving sustainable development

facilitating the flow of efficient technologies, research and development, and green financing

to enhance environmental quality. Social globalization exhibits no discernible impact in both

the short and long run, while economic globalization is associated with environmental

degradation across temporal dimensions. Additionally, political globalization is linked to

environmental degradation only in the short run (Xu et al., 2018). Some studies, including

Khan & Ullah (2019), assert that economic, social, and political globalization contribute to

environmental degradation in both the short and long run. Others, such as Destek (2020),

propose that political globalization has a positive impact on the environment, social

globalization has no significant effect, and environmental degradation increases with rising

economic globalization. Thus, it is very important to examine the impact of financial

development on environmental sustainability with moderating role of disaggregate

globalization. A comprehensive understanding of this relationship is crucial for informed

policy decisions and the promotion of sustainable development practices. Addressing these

knowledge gaps empowers policymakers, businesses, and civil society to work towards a

more sustainable and resilient global economy. This study aims to offer a comprehensive

understanding of achieving environmental sustainability.

PROBLEM STATEMENT

Environmental sustainability, a global imperative, demands unified efforts to meet current and

future resource needs without compromising ecosystems and biodiversity (Morelli, 2011).

This dual responsibility involves mitigating adverse impacts of environmental degradation

while preserving the health, and biodiversity of ecosystems and wildlife. The World Health

Organization links 24% of global deaths to avoidable environmental factors. Environmental

degradation, stemming from human activities like urbanization and natural events like floods

(Maurya et al., 2020), presents a significant challenge. Unsustainable practices like

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deforestation and overfishing contribute to climate change, intensifying extreme weather

events and soil erosion. This depletion of essential resources, including air, water, and soil

quality, jeopardizes healthy ecosystems and human well-being. The consequences of

environmental degradation are vast, affecting human health from mild discomfort to severe

life-threatening conditions (Arora et al., 2018). Various factors, such as population explosion,

water scarcity, energy use, and inefficient waste management, endanger the Earth

(Subramanian et al., 2007). Poverty, lack of education, and limited resources contribute to a

vicious cycle of degradation and poverty, hindering environmental sustainability. Developing

nations heavily depend on the natural environment for health, livelihoods, and economic

growth. The vulnerability of developing nations in addressing environmental degradation and

achieving sustainability is attributed to limited resources. A country's ability to achieve

environmental sustainability influences its economic performance and political situation

(Peiró-Signes et al., 2022). Addressing environmental degradation and promoting

sustainability requires investment in sustainable practices, improved environmental

management, and macro-level awareness (Saud et al., 2020). Globalization, while potentially

transferring dirty technologies, plays a role in promoting ecological sustainability by reducing

the ecological footprint (Kihombo et al., 2022). Financial development, through human

capital and institutional quality, mitigates the negative ecological impacts, highlighting the

intricate relationship between financial factors and sustainability (Liu et al., 2022). Financial

development may prioritize economic growth over environmental protection, leading to

increased environmental burdens. The facilitation of credit for businesses and the undertaking

of new projects due to financial development can increase environmental burden and

pollution levels (Ruza & Caro-Carretero, 2022). Financial development can lead to increased

energy consumption and greenhouse gas emissions, ultimately impacting the environment

negatively (AWGCN et al., 2023). The potential of financial growth to increase carbon

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emissions, posing a cost to the environment (Shobande & Ogbeifun, 2022). Financial

development can have a significant effect on environmental sustainability, but its impact is

influenced by factors such as strict environmental regulations, corruption, and foreign direct

investment (BalsalobreLorente et al., 2023). The nexus between environmental sustainability,

financial development and globalization remains understudied, presenting a crucial research

gap with implications for policymaking, businesses, and society at national and international

levels. This study aims to fill this knowledge gap, providing a comprehensive understanding

and contributing to the academic and practical aspects of achieving environmental

sustainability.

OBJECTIVES OF THE STUDY

Based on problem statement, this study is going to achieve following objectives:

1. To examine the impact of financial development on environmental sustainability

2. To study the impact of financial development with the moderating role of disaggregated

globalization on environmental sustainability

3. To examine the impact of renewable energy consumption on environmental sustainability

4. To examine the impact of energy consumption on environmental sustainability

RESEARCH QUESTIONS

Based on the problem statement and research objectives, the study will answer the following

questions

1. Does financial development impact environmental sustainability?

2. Does financial development with the moderating role of disaggregated globalization

impact environmental sustainability?

3. Does renewable energy consumption impact environmental sustainability?

4. Does energy consumption impact environmental sustainability?

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RESEARCH HYPOTHESES

Based on the problem statement and research objectives, the study will answer the following

questions

H0A: Financial development does not impact environmental sustainability

H1A: Financial development does impact environmental sustainability

H0B: Disaggregated globalization moderation with financial development does not impact

environmental sustainability

H1B: Disaggregated globalization moderation with financial development does impact

environmental sustainability

H0C: Renewable energy consumption does not impact environmental sustainability

H1C: Renewable energy consumption does impact environmental sustainability

H0D: Energy consumption does not impact environmental sustainability

H1D: Energy consumption does impact environmental sustainability

CONTRIBUTION OF THE STUDY

Environmental unsustainability is an escalating crisis that poses a grave threat to the world's

ecosystems and the well-being of its inhabitants (Malakar et al., 2023). Financial

development is intricately linked to environmental sustainability as it influences resource

allocation, investment patterns, and technological innovation, shaping the environmental

impact of economic activities. A robust financial system can channel resources towards

environmental friendly initiatives, fostering the integration of sustainable practices into

economic development (Latif et al., 2023; Faheem et al., 2023). The detrimental effects of

climate change, pollution, and resource depletion underscore the urgent need for

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comprehensive strategies to mitigate environmental degradation. Amidst these challenges,

understanding the potential impact of disaggregated globalization on environmental

sustainability becomes imperative. The relationship between disaggregated globalization and

environmental sustainability is of significant importance due to its far-reaching implications

for economic development, ecological quality, and the well-being of present and future

generations. Existing literature has presented conflicting findings regarding this relationship,

but the potential tradeoffs between globalization and environmental sustainability require in-

depth investigation (Kihombo et al., 2022). The most of the existing literature focuses on

developed countries, and there is a need for more research on the impact of globalization on

environmental sustainability in developing countries (Wang et al., 2023). Disaggregated

globalization serves as a moderating force on financial development, influencing how capital

flows and economic activities interact with environmental sustainability. By fostering cross-

border collaboration, information exchange, and global governance networks, disaggregated

globalization can either amplify or mitigate the environmental impact of financial

development, shaping the overall sustainability outcomes on a global scale. Disaggregated

globalization can facilitate the development of global governance networks, such as those

focused on environmental enforcement and sustainable development, by fostering

cooperation and information sharing among different countries and stakeholders. It can offer

valuable insights into the complex relationship between globalization and environmental

sustainability, particularly in developing nations. For achieving environmental sustainability,

disaggregated globalization can contribute to more sustainable practices by promoting

transparency, accountability, and collaboration. Therefore, a comprehensive understanding of

this relationship is essential for informing policy decisions and promoting sustainable

development practices. By addressing these knowledge gaps, policymakers, businesses, and

civil society can work towards fostering a more sustainable and resilient global economy.

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LITERATURE REVIEW

Xu et al. (2018) examine the contribution of financial development to environmental

degradation in Saudi Arabia, specifically focusing on CO2 emissions. The analysis controls

for the role of globalization and electricity consumption in the relationship between financial

development and CO2 emissions. The results indicate that financial development contributes

to CO2 emissions and degrades environmental quality in Saudi Arabia. The role of

globalization in environmental degradation is found to be insignificant, while electricity

consumption is identified as the main driver of growing CO2 emissions in the country.

Bidirectional causality is observed between globalization and CO2 emissions in the long run,

as well as between financial development and CO2 emissions. The study provides insights for

policymakers to understand the roles of financial development and globalization in

environmental degradation and to comply with global mandates for reducing CO2 emissions.

Rani et al. (2023) investigate the moderating role of globalization (KOF) in determining the

relationship between financial development (FD) and environmental degradation in SAARC

countries from 1990 to 2020. The study uses panel quantile regression (PQR) approach to

estimate the long-run coefficients at lower, middle, and upper quantile groups. The study

finds a U-shaped relationship between financial development and carbon emissions across the

three quantile groups. The moderator globalization (KOF) affects the turning point and

flattens the U-shaped curve at the middle quantile, while it flattens the curve after the

maturity at the upper quantile. The study recommends the use of energy-efficient

technologies and better financial sector interaction with globalization to enhance

environmental quality in SAARC countries.

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Sheraz et al. (2021) explore the moderating role of globalization on the relationship between

financial development, energy consumption, human capital, gross domestic product (GDP),

and carbon emissions in G20 countries. The study uses Fixed Effect Ordinary Least Squares

(FE-OLS), standard error approach and panel causality test to analyze the data from 1986 to

2018. The results show that financial development and human capital have a negative impact

on carbon emissions, while GDP and energy consumption have a positive impact.

Globalization moderates the positive impact of financial development and human capital on

carbon emissions, while it moderates the negative impact of energy consumption and GDP.

The study suggests that a stronger financial system, green finance, and technical education

can contribute to a sustainable environmental agenda. The findings provide insights for

policymakers and governments to formulate country-based policies that balance

environmental protection and sustainable economic goals.

Sethi et al. (2020) examine the effects of globalization, financial development, economic

growth, and energy consumption on environmental sustainability in India from 1980 to 2015.

The study finds that increased globalization and financial development, while improving

economic performance, are detrimental to environmental sustainability. In the short-run,

globalization, economic growth, and increased energy consumption directly contribute to

environmental degradation. Additionally, banking sector development negatively impacts

environmental sustainability through the economic growth channel. The paper suggests that

proactive policies are needed to encourage the adoption of greener and cleaner technologies

in environmentally sustainable areas. This includes improving institutional quality, such as

environmental standards, legal systems, property rights, corruption, and financial information

quality. Incentives and subsidies should also be provided to manufacturing firms that

undertake technological innovations and comply with environmental standards. The paper

uses an ARDL framework to examine the dynamic relationship among environmental

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degradation, globalization, financial development, economic growth, and energy

consumption.

Wang et al. (2019) investigate the impact of globalization on carbon dioxide emissions in

developed and less developed countries. It examines different dimensions of globalization,

including economic, political, and social/cultural aspects, and their influence on carbon

emissions. The study finds that while globalization, particularly social and cultural

globalization, has led to a decrease in carbon emissions in developed countries, it has resulted

in increased emissions in less developed countries, supporting the ecological unequal

exchange theory. International political integration, consistent with world polity theory, has

contributed to carbon reductions over time. The paper highlights the tension between

environmental conservation and degradation in a globalizing world and discusses

opportunities for less developed countries to reduce emissions.

Tahir et al. (2021) analyze the impact of financial development, globalization, and energy use

on the environmental quality of South Asian economies from 1990-2014. The study uses

various tests to account for cross-sectional dependence and determine the stationarity level of

the variables. The results suggest that financial development contributes to carbon emissions,

while globalization has the potential to control emissions. The study also explores the causal

relationship among the variables and finds unidirectional causality from economic growth,

globalization, and financial development to environmental degradation. The study

recommends that the government should monitor the disbursement of loans for research and

development, green financing, and efficient production to improve environmental quality.

South Asian countries should also promote globalization to enhance environmental quality.

Yang et al. (2020) investigate the impact of remittances, energy use, and globalization on

CO2 emissions using a global sample of 97 countries from 1990-2016. The findings suggest

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that remittances and energy use increase CO2 emissions, while globalization reduces CO2

emissions. The results are consistent across both developed and developing/emerging

countries. Governments are recommended to mitigate the adverse impact of remittances and

energy use on the environment through market regulations, research and development for

environmentally friendly technologies, and incentives for importing such technologies.

Additionally, governments can use globalization as a tool to reduce CO2 emissions and

promote environmental quality.

He et al. (2021) examine the effects of economic complexity, economic growth, renewable

energy, and globalization on CO2 emissions in the top 10 energy transition economies. The

study utilizes second-generation unit root tests, Westerlund cointegration approach, and

CSARDL and CCEMG long-run estimators to analyze the data from 1990-2018. The results

show that globalization, renewable energy, and economic complexity decrease carbon

emissions, while economic growth increases carbon emissions. The joint impact of economic

complexity and globalization stimulates environmental sustainability. The government of

these economies should continue to expand the usage of renewable energy and promote

interaction with the rest of the world by adopting the policy of opening up. The study also

highlights the importance of economic complexity in reducing CO2 emissions and suggests

that policymakers should consider economic complexity when formulating economic growth

strategies and

environmental regulations.

Yang et al. (2021) investigate the impact of globalization, financial development, and energy

utilization on environmental sustainability in the Gulf Cooperation Council (GCC) countries.

The study uses ecological footprint as a proxy for environmental sustainability and employs

advanced econometric strategies to examine the relationship. The results show that

globalization, financial development, and energy utilization have a significantly negative

that these factors negatively influence environmental sustainability in each sample country,

consistent with the overall panel findings. The findings are robust to various robustness

checks, indicating the reliability of the main results. The study provides useful policy

implications for promoting environmental sustainability in the GCC countries.

Al-Mulali and Ozturk (2015) examine the factors contributing to environmental degradation

in the Middle East and North African (MENA) region. A panel model is constructed using

data from 14 MENA countries from 1996 to 2012, and the ecological footprint is used as an

indicator of environmental degradation. The results show that energy consumption,

urbanization, trade openness, and industrial development increase environmental damage,

while political stability lessens it in the long run. The study also finds that there are both

shortrun and long-run causal relationships between the variables. The paper provides policy

recommendations for MENA countries to reduce their environmental degradation.

Akadiri et al. (2020) investigate the relationship between electricity consumption,

globalization, and pollutant emissions in China. The study finds a positive correlation

between electricity consumption and economic growth, supporting the electricity-induced

growth hypothesis in China. However, increased electricity consumption also leads to higher

carbon dioxide emissions, indicating an environmental trade-off. The study also finds

empirical support that globalization has reduced pollutant emissions in both the short and

long run. The authors suggest policy recommendations such as diversifying the Chinese

energy mix to cleaner sources and adopting carbon capturing and storage technologies to

address the energyincome and environment nexus. The paper utilizes various econometric

tests, including cointegration and causality tests, to analyze the data. The variables under

consideration, including electricity consumption, carbon dioxide emissions, and economic

growth, exhibit an upward trend over the sampled period. The variables are found to be non-

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stationary at the level form but become stationary after the first difference. The Bayer and

Hanck cointegration test, along with the Pesaran bounds testing procedure, confirms the

presence of a cointegration relationship among the variables.

Ansari et al. (2020) investigate the influence of economic growth, energy consumption, and

globalization on the ecological footprint in the Gulf Cooperation Council (GCC) countries.

The study uses panel econometric approaches to analyze the data from 1991-2017 and finds

that all variables are first-difference stationary, indicating a long-run relationship among the

examined variables. The results suggest that an increase in energy consumption and

globalization leads to an increase in the ecological footprint, and the Environmental Kuznets

curve (EKC) hypothesis is not supported for the GCC countries.

Bayar et al. (2020) investigate the influence of financial development, primary energy

consumption, and economic growth on CO2 emissions in 11 post-transition European Union

countries. The analysis was conducted for the period of 1995-2017 using panel cointegration

and causality analyses. The causality analyses did not reveal a significant connection between

financial sector development and CO2 emissions, but a two-way causality was found between

primary energy consumption, economic growth, and CO2 emissions. Long-run analysis

showed that financial sector development and primary energy consumption positively

affected CO2 emissions. The paper aims to draw the attention of policymakers to create

country-specific strategies that balance the relationship between financial development and

CO2 emissions, ensuring both the development of the financial sector and environmental

protection.

Charfeddine and Kahia (2019) examine the impact of renewable energy consumption and

financial development on CO2 emissions and economic growth in the Middle East and North

Africa (MENA) region. The study uses the panel vector autoregressive (PVAR) model

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developed by Love and Zicchino to analyze the relationship between the variables. The

analysis is conducted for 24 countries in the MENA region from 1980 to 2015. The findings

of the study indicate that renewable energy consumption and financial development both have

a little influence on CO2 emissions and economic growth. The study suggests that the

renewable energy and financial sectors in the MENA countries are still weak in contributing

to environmental quality improvements and economic growth.

Dogan and Seker (2016) analyze the influence of real income, renewable energy

consumption, non-renewable energy consumption, trade openness, and financial development

on carbon emissions in the top renewable energy countries. The study addresses the criticism

of previous studies by using panel estimation techniques that consider cross-sectional

dependence and heterogeneity. The findings suggest that increases in renewable energy

consumption, trade openness, and financial development decrease carbon emissions, while

increases in nonrenewable energy consumption contribute to higher emissions. The paper

supports the

Environmental Kuznets Curve (EKC) hypothesis for the top renewable energy countries.

Recent studies also highlight the importance of trade openness and financial development in

explaining carbon emissions and suggest implementing regulatory policies to increase public

awareness of renewable energy and environmental protection. The adoption of renewable

energy technologies and financial support from developed countries to undeveloped and

developing countries are recommended for adaptation and mitigation efforts.

Destek and Sarkodie (2019) investigate the relationship between economic growth, energy

consumption, financial development, and ecological footprint. The study finds bidirectional

causality between economic growth and ecological footprint, indicating that economic growth

affects ecological footprint and vice versa. There is a unidirectional causality from economic

growth to energy consumption, suggesting that economic growth influences energy

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consumption. The paper uses a group-specific regression model and the Dumitrescu and

Hurlin methodology to examine the causal connections between variables. The results show

support for an inverted U-shaped environmental Kuznets curve hypothesis in newly

industrialized countries. Increased energy consumption leads to an increase in ecological

footprint in some countries, while financial development has a negative coefficient on

environmental degradation in certain countries. Causality tests reveal evidence of bi-

directional causality between economic growth and ecological footprint, as well as one-way

causality from energy consumption to ecological footprint, from ecological footprint to

financial development, and from economic growth to energy consumption and financial

development.

Godil et al. (2020) analyze the long-run and short-run asymmetric impact of tourism,

financial development, and globalization on the ecological footprint (EFP) in Turkey using

the Quantile Autoregressive Distributed Lag (QARDL) model. The study finds that tourism,

globalization, and financial development have a positive and significant association with the

EFP in Turkey, meaning that an increase in these variables will further increase the ecological

footprint. The paper also tests the Environmental Kuznets Curve (EKC) hypothesis and finds

that it holds true in Turkey, indicating a U-shaped relationship between economic

development and environmental degradation. The results show nonlinear and asymmetric

associations among most of the variables, suggesting the need for further research and

practical implications. The paper follows a specific structure, including a literature review,

research methodology, data analysis, and discussion, and concludes with policy suggestions.

The short-term parameters, such as GDP, GLOB, TOUR, GDP2, and FDEV, are used to

measure the cumulative shortterm impacts of GDP, globalization, tourism, GDP squared, and

financial development on the EFP. The paper uses the delta method and the Wald test to

calculate the short-run and long-run asymmetric influences of the variables on the EFP.

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Islam et al. (2019) examine the long-run relationship and causality among energy

consumption, economic growth, financial development, and population in Malaysia. The

results suggest that energy consumption is influenced by economic growth and financial

development in both the short and long run, while the population-energy relation holds only

in the long run. The findings have important policy implications for balancing economic

growth and energy consumption in Malaysia and other emerging nations. The paper also

highlights the need for sustainable economic growth strategies and the role of financial

development in promoting energy consumption and economic growth. The study uses the

Vector Error Correction Model (VECM) to analyze the data and provides statistical output for

the sensitivity test. The paper suggests that liberalizing the energy sector can encourage

efficiency and innovation, while efforts to reduce carbon emissions may have a negative

impact on GDP.

Khalid et al. (2021) examine the impact of financial development, trade openness, primary

and renewable energy utilization, and economic growth on the ecological footprint in SAARC

countries from 1990 to 2017. The study utilizes a comprehensive and multidimensional index

of financial sector development to assess the proficiency of financial development. The study

employs various tests, including cross-sectional dependency tests, unit root tests,

cointegration tests, and panel non-causality tests, to estimate robust results. The results show

a weak effect of financial development on environmental quality in the SAARC region.

However, countryspecific results reveal that financial development significantly enhances

pollution levels in Bangladesh and Sri Lanka, while improving environmental quality in

Nepal. Trade openness only improves environmental quality in Nepal. Primary energy

consumption increases the ecological footprint in Bangladesh, Nepal, and Sri Lanka, while

renewable energy consumption improves environmental quality in all countries except

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Bangladesh. The study provides policy implications for SAARC economies based on the

findings.

Lahiani (2020) examines the asymmetric effect of financial development on CO2 emissions

in China, considering the effects of economic growth and energy consumption. Previous

studies have shown mixed results regarding the relationship between financial development

and CO2 emissions in China. Some studies found a positive effect, while others found no

effect or an increase in emissions. The empirical study in this paper uses unit root tests with

structural breaks and a nonlinear autoregressive distributed lag model. The results show that

an increase in financial development helps decrease CO2 emissions in China. The paper

emphasizes the importance of supporting financial development in China to decrease CO2

emissions while sustaining economic growth.

Le and Ozturk (2020) examine the impacts of globalization, financial development,

government expenditures, and institutional quality on CO2 emissions in 47 Emerging Market

and Developing Economies (EMDEs) between 1990 and 2014. The presence of cross-

sectional dependence and slope heterogeneity in the panel data is validated using CADF and

CIPS unit root tests. Cointegration among the variables is confirmed using Westerlund and

Banerjee and

Carrion-i-Silvestre cointegration tests. Heterogeneous parameters are estimated using

CCEMG, AMG, and DCCE estimators. The findings show that globalization, financial

development, and energy consumption increase CO2 emissions. The Environmental Kuznets

Curve (EKC) hypothesis is affirmed in EMDEs. Governments' financial and governance

activities also boost carbon dioxide emissions. Dumitrescu and Hurlin causality analysis

provides evidence for feedbacks between the variables and CO2 emissions. The study

suggests a trade-off effect between economic growth and environmental quality in EMDE

countries. Policy recommendations include considering the role of finance and governance to

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ensure harmony between energy consumption, financial development, sustainable economic

growth, and the environment in the globalization era.

Lu (2018) investigates the effects of information and communication technology (ICT),

energy consumption, economic growth, and financial development on carbon dioxide

emissions in 12 Asian countries. The study finds that Internet usage is stationary, while

carbon dioxide emissions, energy consumption, GDP, and financial development are first-

difference stationary. The results of the cointegration test confirm a long-run equilibrium in

the ICTenergy-GDP-carbon dioxide emissions nexus. Energy consumption and GDP have

significant positive impacts on carbon dioxide emissions, while ICT has a significantly

negative effect. Causality results show that energy consumption, GDP, and financial

development cause more carbon dioxide emissions, and energy consumption, GDP, and

carbon dioxide emissions cause ICT. The paper suggests that promoting ICT can be an

important strategy to mitigate carbon dioxide emissions, and developing alternative energy

sources is necessary to replace fossil fuels.

Saidi and Mbarek (2017) examine the impact of financial development, income, trade

openness, and urbanization on carbon dioxide emissions in emerging economies. The results

show a positive relationship between income and CO2 emissions, contradicting the

Environmental Kuznets Curve hypothesis. Financial development has a long-run negative

impact on carbon emissions, suggesting that financial reforms can help minimize

environmental degradation. Urbanization is found to decrease CO2 emissions, highlighting

the importance of managing rapid urbanization for policymakers and urban planners. The

study uses a system-GMM model and panel unit root tests to analyze the dynamic

relationship between the variables.

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Saud et al. (2020) explore the role of financial development and globalization in the

environment, specifically in countries involved in the One Belt One Road initiative. The

study employs the Pooled Means Group (PMG) estimator to analyze the long-run

relationships among the variables. The results indicate that there is cross-sectional

dependence among the ecological footprint indicators, GDP, and other variables in the series.

The findings suggest that financial development and globalization have an impact on the

environment, highlighting the need for sustainable development policies in the One Belt One

Road initiative countries.

Shahbaz et al. (2013) investigate the relationship between financial development and CO2

emissions in the Malaysian economy. The study applies the bounds testing approach to

cointegration between the variables and finds significant long-run relationships between CO2

emissions, financial development, energy consumption, and economic growth. The empirical

evidence suggests that financial development reduces CO2 emissions, while energy

consumption and economic growth contribute to CO2 emissions. Granger causality analysis

reveals a feedback hypothesis between financial development and CO2 emissions, energy

consumption and CO2 emissions, and CO2 emissions and economic growth. The study also

highlights the need for an integrated approach that combines financial development policies

with energy policies and economic policies in Malaysia.

Usman et al. (2020) investigate the role of renewable energy and globalization on ecological

footprint in the USA, considering the effects of financial development and real output. The

study uses quarterly data from 1985:Q1 to 2014:Q4 and applies various tests and estimation

approaches to analyze the relationships. Descriptive statistics and plots of variables show that

renewable energy consumption has the highest mean, followed by real output, while the

financial development index has the lowest mean. The variables exhibit fluctuations, possibly

due to structural breaks, with ecological footprint, consumption of renewable energy, and

21
financial development index showing more evident fluctuations. The study incorporates a

comprehensive measurement of financial development index and globalization index, along

with ecological footprint, renewable energy consumption, and real output. All variables are

transformed into their log forms for consistency and ease of interpretation. The findings

suggest that in the long run, renewable energy and real output have a negative impact on

ecological footprint, while financial development and globalization have a positive impact. In

the short run, all four factors are positively linked to ecological footprint. The results also

reveal bidirectional causality between certain variables.

Pata et al. (2015) examine the dynamic relationships between financial development,

globalization, energy consumption, economic growth, and ecological footprint in G7

countries from 1980-2015. The study uses a threshold cointegration test with an endogenous

structural break and fractional frequency causality tests to determine the effects of financial

development and globalization on environmental degradation. The results show cointegration

in Canada, Italy, and Japan, indicating long-term relationships between the variables. In

Canada and Italy, globalization leads to a noteworthy decrease in ecological footprint, while

in Japan, financial development is associated with reduced pollution. However, in all three

countries, energy consumption acts as a driver for environmental degradation. The overall

findings suggest that globalization is a more effective tool than financial development in

regulating ecological footprint for G7 countries. Policymakers are recommended to utilize the

opportunities that globalization offers to address environmental problems.

Shahbaz et al. (2020) examine the financial development-environmental degradation nexus in

the United Arab Emirates (UAE) by considering factors such as economic growth, electricity

consumption, and economic globalization. The study period spans from 1975QI to 2014QIV

in the UAE. The authors apply structural break and cointegration tests to analyze unit root

and cointegration between the variables. The Toda-Yamamoto causality test is used to

22
investigate the causal relationship between the variables, and the robustness of causality

linkages is tested using the innovative accounting approach. The empirical analysis shows

cointegration between the series, indicating a long-term relationship between financial

development and CO2 emissions. Financial development is found to increase CO2 emissions,

while economic growth is positively linked with environmental degradation. On the other

hand, electricity consumption is found to improve environmental quality, and economic

globalization has a negative impact on CO2 emissions. The relationship between financial

development and CO2 emissions is Ushaped and inverted N-shaped, suggesting a complex

relationship. Additionally, the study finds evidence of a Granger-causal relationship, where

financial development causes environmental degradation and vice versa.

Adebayo et al. (2021) examine the impact of urbanization, economic growth, energy

consumption, and financial development on CO2 emissions in Latin American countries.

Panel econometric techniques such as CIDF, panel unit test, Westerlund panel cointegration,

FMOLS, DOLS, and Dumitrescu Hurlin panel causality test are used to assess the

associations. The findings reveal that economic growth, energy consumption, and

urbanization have a positive impact on CO2 emissions in Latin American countries. The

causality test shows that energy consumption and economic growth can predict CO2

emissions in these countries. The study emphasizes the need for policymakers to coordinate

strategies to address the severe environmental degradation in Latin America.

THEORETICAL FRAMEWORK
Environmental unsustainability is a significant issue in macroeconomics, garnering

considerable attention from researchers and economists. Nations grapple with major

challenges such as global warming due to the continuous increase in carbon emissions.

Within the framework of Ecological Modernization Theory (EMT), it is argued that

23
addressing environmental challenges requires technological innovation, institutional reform,

and social learning. The facilitation of these processes is attributed to the roles of financial

development and globalization, which are posited to enhance environmental sustainability by

providing increased resources, incentives, and opportunities for green economic

transformation and environmental governance (Tang, 2022). According to EMT, the process

of urbanization undergoes societal transformation, giving rise to environmental issues

associated with developmental stages. Ecological challenges emerge when prioritizing

income over the environment in the early and middle stages of development. However, as

income levels rise, there is a shift in focus toward maintaining a cleaner environment.

Consequently, the promotion of innovation, adoption of green technologies, and

implementation of environmental friendly regulations contribute to the control of

environmental degradation (Poumanyvong and Kaneko, 2010).

The compact city theory emphasizes the development of densely populated cities with

efficient public transportation and concentrated facilities in a limited area. The establishment

of compact cities aims to reduce energy consumption in transportation, housing, and other

sectors, thereby alleviating emissions (Adams & Klobodu, 2017; Sadorsky, 2014). Similarly,

the urban transition theory establishes a correlation between environmental degradation and

income levels. The theory posits that environmental pressures are a consequence of increasing

income levels, but government interventions can ultimately mitigate these issues (Bekhet and

Othman,

2017). Consistent with the ecological modernization theory, the continuous expansion of

urbanization degrades the environment by increasing carbon emissions. Thus, as urbanization

increases traffic congestion and overcrowding, it consequently raises energy consumption and

carbon emissions.

24
According to the ecological modernization theory, eco-friendly concerns are addressed by

developing resource abundance through green innovation, which simultaneously enhances a

firm's ecological and financial pursuits (Ferronato et al., 2019). This theory specifically

focuses on the relationship between green finance and sustainable development, particularly

in addressing climate change and achieving carbon neutrality. The argument is that green

finance can facilitate technological innovation, institutional reform, and social learning,

contributing to the resolution of environmental challenges (Fu et al., 2023). To assess the

impact of various dimensions of globalization on environmental sustainability, the Ecological

Footprint (EF) approach is suggested. This approach evaluates the environmental

sustainability of different countries or regions by quantifying their ecological deficits or

surpluses. These metrics indicate the extent to which entities are living within or beyond the

Earth's carrying capacity. The EF approach measures human demand for the Earth's natural

resources and compares it with the Earth's biocapacity to regenerate those resources (Zakaria

and Bibi, 2021). Based on existing literature, the conceptual model of this study becomes as:

25
 CONCEPTUAL FRAMEWORK
Explanatory Variables Dependent Variable

Disaggregated
Financial Globalization
Development
Independent Variables (DG)
(FD)

Renewable
Energy
Consumption
(REC)

Energy
Consumption
(EC) Environmental
Sustainability
(ES)
Control VariablesUrbanization
(URB)

Debt (DT)

MATHEMATICAL MODEL

The functional form the model without moderation can be represented as follows:

ES = F (FDit, RECit, ECit, Xit)

ES = Environmental Sustainability

FD = Financial Development

DG = Disaggregated Globalization

26
REC = Renewable Energy Consumption

EC = Energy Consumption

X = Set of control variables

ES = F (FD it, FD*DGit, RECit, ECit, Xit)

FD*DG = interaction of Financial Development and Disaggregated Globalization

ECONOMETRIC MODEL

For examining the coefficients of the selected variables, based on the functional form the

econometric model without moderation can be written as:

ESit = β0+β1FDit+β2RECit+β3ECit+β4Xit +ϵit

All the above indicators have already been explained except

β0= intercept / constant coefficient

βi= slope coefficient / parameters

i= Sample countries (all countries)

t = Time period (1990 to 2022)

€= White noise, Error term

An econometric model with moderation can be written as:

27
 ESit = β0+ β1FDit +β2FD*DGit+β3RECit+β4ECit+β5Xit +ϵit DEFINITION
AND MEASUREMENT OF VARIABLES
Indicator Definition Source Proxy for Reference
Measureme
nt
Environment Meeting the resource and services needs (Morelli Ecological Yang et al.
al of current and future generations without 2011) Footprint (2021)
Sustainability compromising the health of ecosystems
and without diminishing biological
diversity.
Financial Domestic credit provided by the financial The Domestic Faheem at
Development sector includes all credit to various World credit el. (2023)
sectors on a gross basis, with the Bank provided by
exception of credit to the central banks (% of
government, which is net. The financial GDP)
sector includes monetary authorities and
deposit money banks, as well as other
financial corporations where data are
available (including corporations that do
not accept transferable deposits but do
incur such liabilities as time and savings
deposits). Examples of other financial
corporations are finance and leasing
companies, money
lenders, insurance corporations, pension
funds, and foreign exchange companies.
Globalization The growing interconnectedness and The KOF Index Gygli et al.
interdependence of countries through the World (2019)
exchange of goods, services, information, Bank
and ideas across national borders.
Renewabe Renewable energy consumption is the The Renewable Charfeddine
Energy share of renewables energy in total final World energy & Kahia
Consumption energy consumption. Bank consumptio (2019)
n (% of total
final energy
consumptio
n)

28
Energy Energy use refers to use of primary energy The Energy use Yang et al.
Consumption before transformation to other end-use World (kg of oil (2021)
fuels, which is equal to indigenous Bank equivalent
production plus imports and stock per capita)
changes, minus exports and fuels supplied
to ships and aircraft engaged in
international transport.

ECONOMETRIC METHODOLOGY

The appropriate econometric methodology will be applied to the nature of data.

RESULTS AND DISCUSSION

CONCLUSION
Conclusion will be drawn upon the estimated results and policy implications will be
suggested upon estimated results and conclusions.

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