Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142534
Authors: 
Tamazian, Artur
Rao, B. Bhaskara
Year of Publication: 
2009
Series/Report no.: 
EERI Research Paper Series 02/2009
Abstract: 
Several studies have examined the relationship between environmental degradation and economic growth. However, most of them did not take into account financial developments and institutional quality. Moreover, Stern (2004) noted that there are important econometric weaknesses in the earlier studies, such as endogeneity, heteroscedasticity, omitted variables, etc. The purpose of this paper is to fill this gap in the literature by investigating the linkage between not only economic development and environmental quality but also financial development and institutional quality. We employ the standard reduced-form modelling approach to control for country-specific unobserved heterogeneity and GMM estimation to control for endogeneity. Our study considers 24 transition economies and panel data for 1993-2004. Our results support the EKC hypothesis while confirming the importance of both institutional quality and financial development for environmental performance. We also found that financial liberalization may be harmful for environmental quality if it is not accomplished in a strong institutional framework.
Subjects: 
Environmental Degradation
Economic Development
Financial Development
Institutional Quality
EKC
JEL: 
O13
P28
Q53
Q56
Document Type: 
Working Paper

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