Financial Development and Environmental Degradation: Promoting Low-Carbon Competitiveness in E-7 Economies' Industries

Abstract

Rapid industrialisation and economic growth among the emerging E-7 economic countries (China, India, Indonesia, Brazil, Mexico, Russia, and Turkey) negatively degrade the environment in the region. Therefore, this study investigates the relationship between financial development and environmental degradation to promote low-carbon transition. The methodology of data collection techniques employed is the generalised method of moments (GMM) using a one-step and two-step approach, and a seemingly unrelated regression (SUR) test is used to obtain the study objectives. The empirical outcomes unveiled that fiscal decentralisation and financial inclusion favourably moderate the impact of total carbon emission (TCE) and carbon emission per capita on energy (CEPE) intensity. Ecological quality degrades by increasing financial development; however, human capital and institutional quality reduce environmental degradation. The causality analysis suggested that any policy related to economic growth, human capital, and institutional quality will affect the environment. Additionally, an institution’s quality reduces the negative ecological impacts caused by financial development. In conclusion, emerging economies should promote environmental sustainability by fostering human capital and effectively using financial resources. Also, economic growth in E-7 countries is responsible for reducing carbon emissions; therefore, E-7 governments should prioritise research into low-carbon technology and renewable energy sources, and the financial sector must play its role to give more capital that prioritises environmentally conscious enterprises and encourages strategies that minimise environmental impact.

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