Environmental degradation and financial development: do institutional quality and human capital make a difference in G11 nations?

Developing nations are rushing towards economic developments; however, this development is increasing the ecological footprints. In this regard, it has become important to identify the factors of environmental degradation. For sound economic growth, countries are enhancing their human resources with sound financial institutions. Therefore, this work examines the effects of human capital (HC), financial development (FD), and institutional quality (IQ) on ecological footprints (EF) in the group of 11 countries. This work also checks the interactional effect of FD, human capital, and IQ on ecological footprints. This work employs the annual data of 1984-2017 and utilizes the cross-sectional autoregressive distributed lag approach for panel data analysis (CS-ARDL). The findings show that FD is degrading the environmental quality by 0.04%. Furthermore, IQ and HC are improving environmental quality by 0.07% and 0.01%. The findings also reveal that FD is lowering ecological footprints through the channel of HC and IQ. Based on the findings, these countries need to extend human capital with an efficient institutional network for environmental sustainability. These countries need to allocate funds to the health and education sector to develop human capital. Moreover, human resource management tools should be strengthened to cope with the challenges of environmental problems.

Automated summary

Developing countries are experiencing economic growth at the cost of increasing ecological footprints. This study examines the effects of human capital, financial development, and institutional quality on ecological footprints in a group of 11 countries. The findings show that financial development degrades environmental quality, while institutional quality and human capital improve it. Furthermore, financial development lowers ecological footprints through the channels of human capital and institutional quality. Therefore, developing countries need to prioritize human capital development and establish efficient institutional networks for environmental sustainability.