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Does financial development has (a)symmetric effect on environmental quality: insights from South Africa

Author

Listed:
  • James Temitope Dada
  • Titus Ayobami Ojeyinka
  • Mamdouh Abdulaziz Saleh Al-Faryan
Abstract
Purpose - This paper investigates the (a)symmetric effects of financial development in the presence of economic growth, energy consumption, urbanization and foreign direct investment on environmental quality of South Africa between 1980 and 2017. Design/methodology/approach - A robust measure of financial development is generated using banking institutions and non-banking institutions market-based financial development indicators, while environmental quality is measured using carbon footprint, non-carbon footprint and ecological footprint. The objectives of the study are captured using linear and non-linear autoregressive distributed lag. Findings - The result from the symmetric analysis suggests that financial development stimulates carbon footprint and ecological footprint in the short run; however, financial development abates non-carbon footprint. In the long run, financial development has a significant negative effect on carbon footprint and ecological footprint. However, the asymmetric analysis established strong asymmetric effect in the short run, while no asymmetric effect is found in the long run. The short run asymmetric analysis reveals that positive shock in financial development increases carbon footprint and ecological footprint; however, positive changes in financial development reduce non-carbon footprint. Negative shocks in financial development, on the other hand, have a positive impact carbon footprint, non-carbon footprint and ecological footprint. Practical implications - The study's outcome implies that the concept of “more finance, more growth” could also be applied to “more finance, better environment” in South Africa. The study offers vital policy suggestions for the realization of sustainable development in South Africa. Originality/value - This empiric adds to the body of knowledge on the influence of financial development on various components of environmental quality (carbon footprint, non-carbon footprint and ecological footprint) in South Africa.

Suggested Citation

  • James Temitope Dada & Titus Ayobami Ojeyinka & Mamdouh Abdulaziz Saleh Al-Faryan, 2022. "Does financial development has (a)symmetric effect on environmental quality: insights from South Africa," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(6), pages 1130-1157, October.
    • Handle: RePEc:eme:jespps:jes-06-2022-0352
    DOI: 10.1108/JES-06-2022-0352
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    More about this item

    Keywords

    Environmental quality; Carbon footprint; Non-carbon footprint; Ecological footprint; Financial development; South Africa; P48; Q53;
    All these keywords.

    JEL classification:

    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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