18th Economics & Finance Conference, London

EXPLORING THE RELATIONSHIPS AMONG TECHNOLOGICAL INNOVATION, FINANCIAL DEVELOPMENT AND ENVIRONMENTAL POLLUTION

ICHRAF OUECHTATI

Abstract:

The Paris Climate Conference commits countries to contribute to reducing global warming through Nationally Determined Contributions (NDC) that implore countries to reduce their emissions for better environmental quality. Recognizing the importance of innovation and financial sector development for environmental quality, several countries have embarked on identifying ways to improve environmental quality. However, studies of the three-way links between innovation, financial development and pollution relationships have produced mixed results. More tellingly, how countries' levels of innovation moderate the link between financial development and pollution remains to be studied. Drawing on data from 45 selected high- and middle-income countries covering the period 2000-2018 to examine tripartite relationships, particular attention is paid to the moderating role of innovation in the link between finance and CO2 emissions. Based on the Generalized Method of Moments (GMM) approach, we conclude a negative effect of innovation. Considering the positive impact of financial development, we find that if financial development increases CO2 emission, higher innovation reduces the deleterious unconditional impact of financial sector development on environmental quality.

Keywords: Innovation, Financial development, Pollution, CO2