The impact of financial development, political institutions, and urbanization on environmental degradation: evidence from 59 less-developed economies

This study endeavors to explore the bearing of financial development, political institutions, urbanization, and trade openness on CO(2)emanations in a group of 59 less-developed countries, over the period of 1996-2016. In order to estimate environmental impacts of aforementioned series, we used cross-sectionally weighted Estimated Generalized Least Square (EGLS) methodology, Arellano-Bond Generalized Method of Moment (A-B GMM), and Orthogonal-Deviation GMM (O-D GMM). The study finds that financial development, urbanization, composition effect (measured by capital/labor ratio) and energy consumption deteriorate environmental quality. Our results confirmed the prevalence of Environmental Kuznets Curve (EKC) proposition which undertakes upturned-U shape bond amid economic growth and pollution emanations. Furthermore, institutions and foreign trade are found to have beneficial environmental impact. This study suggests resilient institutional reforms and comprehensively integrated environmental quality concerns in financial reforms to help to mitigate pollution emanations and achieve sustained economic growth in less-developed economies.

Automated summary

The study reveals that financial development, urbanization, composition effect, and energy consumption have negative impacts on environmental quality, while political institutions and foreign trade have beneficial effects. Therefore, it is important to integrate environmental considerations into financial reforms and implement institutional reforms to mitigate pollution emissions.