The effect of financial development and economic growth on ecological footprint: evidence from top 10 emitter countries

Abstract

This study investigates the efect of fnancial development and economic growth on ecological footprint by including nonrenewable energy consumption and trade openness as additional determinants. For this purpose, annual data of 10 countries with the highest ecological footprint (China, the USA, India, Japan, Brazil, Indonesia, Mexico, Korea, Turkey, and the UK) for the period 1992–2017 is used. The Westerlund and Edgerton (2007) Panel LM bootstrap test results reveal that there is cointegration between the variables. Additionally, the results obtained from the Common Correlated Efects (CCE) coefcient estimator show that fnancial development, economic growth, and non-renewable energy consumption negatively afect environmental quality by increasing ecological footprint. On other hand, the efect of trade openness on ecological footprint is found to be statistically insignifcant. In addition, according to the panel causality test results, a unidirectional causality from fnancial development to ecological footprint is found while bidirectional causality between economic growth and ecological footprint exists. Therefore, it would be benefcial for policymakers in such countries to direct fnancial resources to green energy production and consumption and to encourage projects and practices.