Financial Development and CO₂ Emissions: A Global Analysis and Continent-level Comparisons of Institutional Quality’s Mediating Role Vol. 30, Issue 2

Abstract

This study examines the relationships among financial development, renewable energy, institutional quality, and carbon dioxide (CO2) emissions using dynamic panel data techniques from 1990 to 2020. The empirical results of the econometric analysis suggest that financial development does not necessarily reduce CO2 emissions unless institutional quality improves. Financial development exacerbates environmental deterioration by increasing CO2 emissions in all regions except Europe, whereas renewable energy consumption and institutional quality improve environmental quality. Thus, good institutional quality emerged as a mediating variable between financial development and environmental quality in curbing CO2 emissions and promoting sustainable development worldwide.