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RESEARCH ARTICLE
The effect of financial development on ecological footprint in BRI
countries: evidence from panel data estimation
Muhammad Awais Baloch
1
&Jianjun Zhang
2
&Kashif Iqbal
3
&Zeeshan Iqbal
4
Received: 14 October 2018 / Accepted: 12 December 2018 / Published online: 7 January 2019
#Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract
This work aims to contribute to the existing literature by investigating at the impact of financial development on ecological
footprint. To achieve this goal, we have employed Driscoll-Kraay panel regression model for a panel of 59 Belt and Road
countries in the period from 1990 to 2016. The findings suggest that financial development increases ecological footprint.
Moreover, economic growth, energy consumption, foreign direct investment (FDI), and urbanization pollute the environment
by increasing ecological footprint. In addition, several diagnostic tests have been applied to confirm the reliability and validity of
the results. From the outcome of the study, various policy implications have been proposed for Belt and Road countries to
minimize the ecological footprint.
Keywords Financial development .Ecological footprint .Driscoll-Kraay panel regression .BRI countries
Introduction
Sound and developed financial sector plays an important
role in the country’s economic growth and improves the
economic efficiency of the financial system. Despite the
fact that financial development offers economic benefits,
there are shortcomings as financial development might
bring adverse problems to the environment and deplete
the natural resources in several ways. For instance, finan-
cial development builds consumer’s confidence to buy
Blarge ticket^like houses, machinery, air conditioners,
and automobiles; these raise the energy demand, in turn,
environmental issues emerge. Similarly, financial develop-
ment eliminates investment barriers for businesses through
provision of access to financial capital, ultimately investor
set up new plants and installs more machinery which in
turn consume a large amount of energy and discharges
more waste and carbon dioxide (CO
2
) emissions into the
environment (Danish et al. 2018b). On the contrary, there
are also a few existing studies suggesting that financial
development decreases pollution. For instance, Zhang
(2011) posits that financial development brings environ-
mental friendly project by promoting research and devel-
opment (R&D) that leads to reducing environmental deg-
radation. In addition, Shahbaz et al. (2016) argue that fi-
nancial development boosts investment in efficient tech-
nologies and promotes renewable energy sources, which
are less likely to harm the environment.
From the above discussion, it is clear that there is a
reasonable connection between financial development
and the environment. There is evidence in existing litera-
ture that has investigated the nexus of financial develop-
ment and CO
2
emissions (Shahbaz et al. 2013;
Charfeddine and Ben Khediri 2015;Bekhetetal.2017;
Maji et al. 2017). CO
2
emissions were widely discussed
as a factor of environmental quality. Recently, ecological
footprint is one of the comprehensive indicators of envi-
ronmental quality (Uddin et al. 2017; Katircioglu et al.
2018a). In literature, studies have identified several deter-
minants of ecological footprint, such as economic growth
Responsible editor: Philippe Garrigues
*Jianjun Zhang
jjzhang@xidian.edu.cn
Muhammad Awais Baloch
mawaisbaloch@hotmail.com
1
School of Management and Economics, Beijing Institute of
Technology, Beijing 100081, China
2
School of Economics and Management, Xi’dian University,
Xi’an, China
3
School of Economics and Management, Beijing University of Posts
and Telecommunications, Beijing 100876, China
4
School of Public Administration, University of International
Business and Economics, Beijing, China
Environmental Science and Pollution Research (2019) 26:6199–6208
https://doi.org/10.1007/s11356-018-3992-9
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