How Does Institutional Quality Moderate the Influence of Financial Development on Environmental Pollution? Evidence From G20 Countries

Abstract Unlike previous studies that focused mainly on the relationship between financial development and CO2 emissions, the current study examined the moderating effect of institutional quality on the influence of financial development on environmental pollution in G20 countries over the period 2003-2015. The panel corrected standard errors (PCSE) is employed as an econometric technique. The findings are established as follows: First, the findings show that institutional quality appears to have a mixed (positive and negative) effect on environmental pollution. Second, the findings show that financial development has mixed (positive and negative) effect on environmental pollution. Third, the findings also show that the interaction between institutional quality and financial development has a negative and statistically significant on environmental pollution, meaning that institutional quality complements financial sector to reduce environmental pollution. Policy implications are discussed.