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Financial development and macroeconomic sustainability: modeling based on a modified environmental Kuznets curve

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Abstract

Sustainability has become an important and widely applied concept in the environmental economics literature. Despite the numerous studies employing an environmental Kuznets curve (EKC), this model has been critiqued for its incompleteness. This article builds a modified EKC model to examine the contribution of financial development for achieving sustainable development in the case of 14 selected Middle East and North Africa (MENA) countries. Using the Augmented Mean Group (AMG) and Common Correlated Effects Mean Group (CCEMG) estimators, our empirical results show that the EKC hypothesis is valid for per capita CO2 emissions and ecological footprint. The results provide evidence also of the presence of linear and non-linear relationships between financial development and non-sustainability and indicate that financial development is likely to have a small long-term impact on sustainable development. This suggests that current efforts aimed at protecting the environment and achieving sustainability will be ineffective given the extent of the problem.

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Notes

  1. Most of the EKC literature assumes weak sustainability and does not take account of irreversibility and other issues linked to “strong sustainability.” The studies in this strand of work use “CO2 emissions, SO2 emissions, or GHG emissions in general” to proxy for environmental quality. Few papers extend the EKC framework to consider more complex indices. In our work, despite these limitations, we use genuine savings (GS) as proxy for environmental quality (sustainability). This construct considers more environmental assets in its composition and tries to examine different facets of environmental degradation. However, the construct is still considered as a construct of a weak sustainability. These shortcomings should be considered when interpreting our results.

  2. Globalization (foreign direct investment and trade liberalization) increases pollution levels in host countries (Omri and Belhadj 2020).

  3. Most studies use CO2 emissions to measure environmental degradation but these represent a small proportion of total environmental degradation (Al-Mulali et al. 2015).

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Authors and Affiliations

  1. University Côte d’Azur, France, ISEM, 24 Avenue des Diables Bleus, 06300, Nice, France

    Adel Ben Youssef

  2. Métis Lab, EM Normandie Business School, Le Havre, France

    Sabri Boubaker

  3. International School, Vietnam National University, Hanoi, Vietnam

    Sabri Boubaker

  4. Department of Business Administration, College of Business and Economics, Qassim University, P.O. Box: 6640, Buraidah, Qassim, 51452, Saudi Arabia

    Anis Omri

  5. Department of Economics, Faculty of Economics and Management of Nabeul, University of Carhage, Tunis, Tunisia

    Anis Omri

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  1. Adel Ben Youssef
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  3. Anis Omri
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Correspondence to Anis Omri.

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Youssef, A.B., Boubaker, S. & Omri, A. Financial development and macroeconomic sustainability: modeling based on a modified environmental Kuznets curve. Climatic Change 163, 767–785 (2020). https://doi.org/10.1007/s10584-020-02914-z

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