Environmental Science and Pollution Research (2019) 26:6199–6208

https://doi.org/10.1007/s11356-018-3992-9

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 environmental issues emerge. Similarly, financial develop-

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,
Responsible editor: Philippe Garrigues
* Jianjun Zhang
jjzhang@xidian.edu.cn
Muhammad Awais Baloch
mawaisbaloch@hotmail.com
1 m e n t a n d C O 2 emissio ns (Shahb az e t al. 20 13;
School of Management and Economics, Beijing Institute of
Technology, Beijing 100081, China
2 Maji et al. 2017). CO2 emissions were widely discussed
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 2018a). In literature, studies have identified several deter-
School of Public Administration, University of International
Business and Economics, Beijing, China
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 (CO2) 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-
Charfeddine and Ben Khediri 2015; Bekhet et al. 2017;
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.
minants of ecological footprint, such as economic growth
6200
(Tutulmaz 2015); foreign direct investment (FDI) (Solarin
and Al-mulali 2018); tourism (Katircioglu et al. 2018b);
and natural resources (Hassan et al. 2018). Apart from it,
few studies have examined the effect of financial develop-
ment on ecological footprint, for instance (Charfeddine
and Ben Khediri 2015; Destek and Sarkodie 2019).
Ecological footprint captures how much regenerative
biological capacity human activities demand from the en-
vironment as a result of the production and consumption
of goods and services. Ecological footprint refers as Bfor
how much area of biologically productive land and water
an individual, population, or activity requires to produce
all the resources it consumes and to absorb the waste
(carbon dioxide) it generates, using prevailing technology
and resource management practices^ (Rudolph and Figge
2017). The aggregation of the ecological footprint is based
on (i) cropland, (ii) grazing land, (iii) fishing grounds, (iv)
forest land, (v) built-up land, and (vi) carbon footprint.
Cropland takes into account the land needed to produce
crop goods, for instance, livestock feedstuffs, fish meal,
crops, oil, and rubber. Grazing land includes grassland and
pasture to feed livestock in addition to crop goods. Fishing
grounds (seafood) estimates the production needed in a
year to sustain water species. Forestland quantifies land
required in a year to harvest timber for paper products
and fuel and to supply forest products. The built-up land
measures the land required to build infrastructure, for ex-
ample, buildings, industrial structures, housing, roads, and
reservoirs for hydroelectric power generation. Finally, car-
bon footprint indicates the land required for carbon se-
questration (Ulucak and Bilgili 2018).
The BR initiative (BRI) countries emerge as a new
group of countries. The BRI mega project is introduced
by China to connect more than 65 countries of the world.
BRI countries cover 62% population of the world, has its
share of 35% in the world’s trade and about 31% of the
world’s gross domestic product (GDP). BRI countries have
great economic significance due to its economic coopera-
tion area that covers the wide area from the western Pacific
to the Baltic Sea (Chin and He 2016). The project focuses
on developing countries through free trade and provides
better physical and digital excess to international markets.
In this regard, the project has aimed to strengthen the fi-
nancial sectors through better financial integration. It will
help to improve infrastructure by developing new roads,
railway tracks, seaports as well as optical fiber lines be-
tween countries (Brown 2017). Given the expected devel-
opment in BRI countries, it is essential to understand that
to what extent financial development contributes to eco-
logical footprint. The outcome derived from the empirical
analysis will provide a useful insight to policymakers and
urge them to take serious note on the possible growth of
ecological footprint as a result of economic growth caused
Environ Sci Pollut Res (2019) 26:6199–6208
by financial development. On the basis of the above argu-
ments, this study aims to investigate the impact of financial
development and other potential factors (economic growth
and energy consumption) on the ecological footprint in
BRI countries.
Since some studies have investigated the impact of financial
development on environmental degradation, the current study
contributes to the existing literature by examining the nexus of
financial development and ecological footprint in BRI coun-
tries. This paper is different in the sense that it disaggregates
financial development into three proxies suggested by World
Bank, namely, domestic credit provided by the private sector,
domestic credit provided by the financial sector, and domestic
credit provided by the banking sector. Thus, this study contrib-
utes to the extent of literature in the following ways. First, this
study extends the better understanding of the relationship be-
tween financial development and ecological footprint in BRI
countries. To the best of the authors’ knowledge, none of the
studies has so far examined the impact of financial develop-
ment on ecological footprint indicator in BRI countries. Thus,
the outcome of the study can give a broader picture of how
financial development degrades the environment.
The rest of the paper is structured as follows: the
BLiterature review^ section provides a theoretical framework
for the study. The BModel construction and data source^ sec-
tion explains the econometric methodology and data source.
The BEmpirical results and discussion^ section gives the anal-
ysis of results and discussion. Finally, the BConclusion and
policy recommendation^ section concludes the study and
gives policy recommendations.
Literature review
A large number of studies have investigated the nexus of
financial development and economic growth for both time
series and panel data. In the case of time series data,
several studies have confirmed the nexus of financial
development and economic growth. For instance,
Katircioglu et al. (2007) for India, Soukhakian (2007a,
b) for Japan, Soukhakian (2007b) for Iran, Jenkins and
Katircioglu (2010) for Cyprus, (Nazlioglu et al. 2009)
for Turkey, Saqib and Waheed (2011) for Pakistan,
Katircioglu and Turan (2012) for Sub-Saharan African,
Fethi et al. (2013) for North Cyprus economy, Fethi and
Katircioglu (2015) for UK economy, and Katircioğlu et al.
(2018) for Turkey. Similarly, in the case of panel studies,
Waheed and Younus (2010) confirm the effect of financial
development on economic growth for both developed and
developing countries. The literature review conducted by
Sodeyfi (2016) also reveals a strong connection between
financial development and economic growth.
Environ Sci Pollut Res (2019) 26:6199–6208
As for the linkage between FDI and economic growth,
various studies have been carried out to investigate the
nexus of FDI and economic growth. For instance,
Katircioglu and Naraliyeva (2006) for Kazakhstan,
Katircioglu (2009) for Turkey, Katircioglu (2011) for
Turkey, Guris (2012) for Turkey, Kalim et al. (2012) for
Pakistan, Taşpınar (2014) for Turkey, Kurtovic et al. (2014)
for six Western Balkans countries, Guris et al. (2015) for
developed and developing countries, Yilmaz and Can (2016)
for Turkey, and Danish et al. (2018c) for China. The evidence
found in these studies confirms the existence of a long-term
relationship between FDI and economic growth.
In the case of environmental degradation, several stud-
ies have examined the different factors that harm the envi-
ronmental quality. In this regards, Katircioglu et al.(2018d)
tested the role of urbanization and found the conventional
environmental Kuznets curve (EKC) is not inverted U-
shape. Similarly, Katircioğlu and Katircioğlu (2017) estab-
lish that EKC is not inverted U-shape in the presence of
urbanization in the case of Turkey. Moreover, Jumadilova
(2012) discusses the role of the oil and gas sector in the
economic development of Kazakhstan. Al-Abdulhadi
(2014) calculates the demand for oil products in the
Middle Eastern countries. However, the findings of
Gokmenoglu et al. (2016) suggest that the effect of oil rent
on agricultural development is positive whereas the effect
of oil production on agricultural development is negative
in case of Nigeria. Sodeyfi and Katircioglu (2016) suggest
that the oil price movements affect the economic activities
in the selected countries. Danish et al. (2017) investigated
that non-renewable energy is responsible for degrading en-
vironment in Pakistan. Danish et al. (2018d) claim that
energy production deteriorates the environmental quality
in Pakistan. In addition, Katircioglu et al. (2018c) reveal
the negative moderating effect of oil prices on the relation-
ship between FDI, trade, tourism, and economic growth in
Turkey. Xu et al. (2018) argue that financial development
deteriorates the environment in Saudi Arabia. On the contrary,
Park et al. (2018) show a negative relationship between finan-
cial development and CO2 emissions. Whereas, outlier Baloch
et al. (2018) suggest that financial instability is not harmful to
the environment in Saudi Arabia.
There are also several studies that support the causal
relationship between economic growth and CO 2
emissions. In the case of Thailand and Malaysia,
Anatasia (2015) confirms the existence of unidirectional
causality from economic growth to CO2 emissions. In con-
trast, Kapusuzoğlu (2014) found that unidirectional causal-
ity exists from CO2 emissions to economic growth in the
case of Turkey and worldwide panel data. Furthermore,
Ozcan and Ari (2017) confirm that the feedback hypothesis
exists between nuclear energy consumption and economic
growth in the case of OECD countries.
6201
Model construction and data source
Theoretical framework
Financial development is imperative because it can up-
surge the economic efficiency of a country’s financial
structure. Financial development stimulates many under-
takings within a country for instance; financial develop-
ment enlarges foreign direct investment (FDI), expands
banking activities, and enhances stock market activities
(Katircioğlu et al. 2018). In the same way, financial devel-
opment reduces financial risk and capital cost. In addition,
it provides more opportunities for financial capital and
increases transparency between creditors and debtors.
Furthermore, development in the financial sector broadens
the scope of investment between borders and provides
greater opportunity to access the latest energy-efficient
products and cutting-edge technology. These develop-
ments can affect the environment by increasing economic
activities. Therefore, financial development can hurt the
environment in several ways. For instance, financial de-
velopment provokes customers to borrow money and buy
luxurious products (big ticket) like houses, air condi-
tioners, refrigerators, automobiles, and washing machines
which results in environmental pollution. Similarly, finan-
cial development makes financial capital cheaper for the
businesses which can be utilized to set up more plants,
build new sites, and buy more equipment and machinery
(Sadorsky 2010). In addition, development of stock mar-
ket results in more sources of funding and equity financing
for businesses that allow them to grow their output and
hence environmental pollution (Abbasi and Riaz 2016).
Danish et al. (2018a, b ,c ,d) reveal financial development
can affect the economic growth and thus environment by
raising the standard of living. It helps producers to buy
advanced machinery and equipment by offering cheaper
loans. Thus, it is evident that financial development stim-
ulates economic growth which results in high human de-
mands on nature and thereby environmental pollution.
This study uses the ecological footprint to determine the
environmental impact caused by financial development. In
this regard, only a few pieces of evidence have been found
in the literature that linked financial development with
ecological footprint. For instance, Charfeddine (2017)
found that financial development contributes positively
in increasing ecological footprint in case of Qatar.
Similar facts highlighted by Mrabet and Alsamara
(2017) show that financial development upsurges ecolog-
ical footprint in Qatar. However, Uddin et al. (2017)
found that financial development mitigates ecological
footprint in 27 highest emitting countries. In order to
examine how the transformation in financial development
affects environmental pollution in BRI countries, this
6202
study examines the nexus of financial development and
ecological footprint by incorporating, economic growth,
FDI, urbanization, and energy consumption.
LogEF it ¼ ∞ þ β1t LogFDit þ β2t LogGDPit ð1Þ
þ β3t LogEC it þ β4t LogFDI it
þ β5t LogURBit þ μ0
where EF shows ecological footprint, GDP represents eco-
nomic growth per capita, EC indicates energy consumption,
FDI shows foreign direct investment, and URB exhibit
urbanization.
From the literature, several potential factors are incor-
porated such as urbanization, energy consumption, and
FDI. Previous studies have acknowledged that urbaniza-
tion utilizes huge natural resources, in turn, produces more
goods that establish corresponding domestic consumer
markets. The urbanization is major markets for commodi-
ties that require bio-productive components in their pro-
duction (Charfeddine and Mrabet 2017). Furthermore, ur-
banization brings several changes in the economy such as
development in business, provision of social services, and
development in infrastructure, which has a significant im-
pact on environmental pollution (Islam et al. 2013).
Urbanization is responsible for hampering environmental
quality in Pakistan (Danish and Baloch 2017). Finally, FDI
is incorporated into this study because FDI allows business
to boost their existing resources and set up new plants that
ultimately have adverse effects on the environment
(Neequaye and Oladi 2015; Danish et al. 2018a).
Driscoll-Kraay standard error approach
We are using Driscoll and Kraay (1998) (DK) standard
error technique to examine the effect of financial develop-
ment on the ecological footprint for a panel of BRI coun-
tries. In using DK standard error technique, first, we will
take averages of the product between independent vari-
ables and residuals, and then use these values in a weight-
ed HAC estimator to produce standard errors that now
have the added feature of being robust against cross-
sectional dependence (Jalil 2014). The advantages of DK
standard error is considered one of the best technique if
there is any chance of heteroscedasticity and spatial and
serial dependency in the data (Ozokcu Selin Ozdemir
2017; Sarkodie and Strezov 2019). DK technique is a
non-parametric approach that allows flexibility, and large
time dimension. In addition, DK covariance estimator can
handle missing values and applicable in both balanced and
unbalanced panel data. DK estimates are robust to general
forms of cross-sectional and temporal dependence. Thus,
this study utilizes DK standard errors for pooled ordinary
Environ Sci Pollut Res (2019) 26:6199–6208
least squares (OLS) estimation by considering a linear
model expressed as:
yi;t ¼ x0 i;t β þ εi;t ; i ¼ 1; …; N; t ¼ 1; …:; T
where yi,t is the dependent variable (ecological footprint)
and is a scalar, and xi, t denotes the independent variables
(economic growth, financial development, urbanization,
trade, and FDI).
Description of variables and data sources
This study uses annual data of 59 BRI countries from 1990 to
2016 (for a list of countries, please see Appendix Table 5). The
selection of countries and data are based on data availability.
The dataset includes variables of financial development,
economic growth, energy consumption, FDI, urbanization,
and ecological footprint. Following Shahbaz et al. (2017)
and Danish et al. (2018b), this study takes into account three
proxies of financial development, i.e., financial development
of private, banking, and financial sector. Financial develop-
ment of the private, banking, and financial sectors are mea-
sured by domestic credit to private sector (% of GDP), domes-
tic credit to the private sector by banks (% of GDP), and
domestic credit provided by the financial sector (% of GDP)
respectively. Economic growth is measured by GDP per capita
(constant 2010 US Dollar), Energy consumption is estimated
by kilogram of oil equivalent per capita. FDI is calculated by
the net inflows of investment percentage of GDP.
Urbanization is measured urban population in the percentage
of the total population. The ecological footprint is used as a
proxy for environmental pollution. It is an aggregate of crop-
land, grazing, fishing, forest, carbon footprints, and infrastruc-
ture footprints. In simple words, ecological footprint refers to
the land and sea required to supporting the consumption of the
country measured in hectares. The higher the ecological foot-
print of a country means the higher the environmental damage
of that country (Ozturk et al. 2016). Data for financial devel-
opment indicators, economic growth, energy consumption,
FDI, and urbanization are collected from World
Development Indicators (WDI). The data regarding ecological
footprint are extracted from the Global Footprint Network.1
Empirical results and discussion
Descriptive statistics
The summary statistics and correlation matrix are given in
Table 1. The study finds the highest volatility in FDI and
lowest volatility in urbanization. The correlation matrix shows
1
For more details, please see https://www.footprintnetwork.org/
Environ Sci Pollut Res (2019) 26:6199–6208 6203

Table 1 Results of descriptive statistic

Descriptive statistic Log EC Log EF Log FDbanking sector Log FDfinancial sector Log FDI Log FDprivate sector Log GDP Log Urb

Mean 3.170 0.422 1.499 1.656 0.353 1.517 3.637 1.706

Median 3.197 0.465 1.574 1.694 0.436 1.579 3.663 1.751
Maximum 4.341 1.227 2.221 2.332 2.790 2.221 4.861 1.997
Minimum 2.062 − 0.333 − 3.088 − 2.754 − 5.321 − 3.084 2.213 0.947
Std. dev. 0.451 0.312 0.433 0.398 0.620 0.436 0.564 0.205
Skewness 0.070 0.014 − 2.776 − 3.260 − 1.910 − 2.682 − 0.103 − 1.008
Correlation matrix
Log EC 1.000
Log EF 0.920 1.000
Log FDbanking sector 0.337 0.376 1.000
Log FDfinancial sector 0.180 0.219 0.844 1.000
Log FDI − 0.074 − 0.027 − 0.021 − 0.043 1.000
Log FDprivate sector 0.332 0.366 0.989 0.859 − 0.023 1.000
Log GDP 0.871 0.862 0.443 0.271 − 0.096 0.428 1.000
Log URB 0.749 0.756 0.287 0.178 − 0.012 0.273 0.801 1.000

a positive correlation between financial development and eco-
logical footprint, economic growth and ecological footprint,
energy consumption and ecological footprint, and urbaniza-
tion and ecological footprint. Similarly, financial development
is positively correlated with GDP growth, energy consump-
tion, and urbanization.
Panel unit root test
In order to analyze the unit root properties of the variables,
this study has applied IPS (IM Pesaran Shin), Fisher ADF,
and Fisher PP unit root tests. Simultaneously, the study
also utilizes Pesaran’s CIPS unit root test and CADF unit
root tests proposed by Pesaran (2007). We have tested the
null hypothesis of non-stationary for all the variables in the
study. The outcome of panel unit root tests is reported in
Table 2 suggesting that the null hypothesis is rejected at the
first-level difference. It reflects that all variables are inte-
grated at the first difference I (1) and also significant at 1%
and 5% level of significance. These results indicate that the
variables used in this study are stationary and we can pro-
ceed with estimating the regression coefficients.
Panel regression estimator results
The results drawn from Driscoll-Kraay regression analysis
provide some interesting facts (see Table 3). First, the
findings suggest that the effect of financial development
is positive and statistically significant on ecological foot-
print. This could be attributed that financial development
stimulates human demands and financial sector allocates
resources to firms which in turn enhances manufacturing
activities that lead to increasing industrial waste and
environmental degradation. Moreover, financial develop-
ment promotes infrastructure projects by providing
medium-to-long-term developmental loans. These infra-
structure projects include building roads, railway tracks,
and seaports and require huge land, water, and air re-
sources which cause to increase ecological footprint. In
this regard, the financial sector has the authority to punish
those firms which are not environmental friendly through
suspension of their access to an easy loan (Nasreen et al.
2017). Another possible reason can be that financial de-
velopment increases the buying power of the general pub-
lic by offering cheap loans. This enables people to buy
luxury goods such as houses, automobile, and air
conditions that in turn exert immense pressure on the
environment. Therefore, the group of BRI countries
should take a serious note on the environmental impact
caused by financial development. The findings are
consistent with Charfeddine (2017) and (Mrabet and
Alsamara 2017) for Qatar. However, it is contradictory to
Uddin et al. (2017) who report that financial development
reduces ecological footprint.
Furthermore, the impact of economic growth is positive
on ecological footprint. It is an immense possibility that
BRI has boosted the major sectors of the economy such
as agriculture, industrial, and transport. Another reason
can be that economic growth stimulates economic activi-
ties by boosting the level of investment, purchase, and
consumption that leads to rising ecological footprint. In
addition, findings reveal that an increase in energy con-
sumption leads to an increase in ecological footprint. It
may be due to the reason that BRI counties are dependent
on the traditional form of energy sources such as gas, oil,
and coal. Another possibility might be that energy
6204 Environ Sci Pollut Res (2019) 26:6199–6208

Decision
technologies used in these countries are outdated that in-

I (1)
I (1)
I (1)
I (1)
I (1)
I (1)
− 14.755* [0.000] − 3.547* − 2.596* I (1)
− 18.314* [0.000] − 2.610** − 2.549** I (1)
fluence the ecological footprint.
Regarding the impact of FDI on ecological footprint, the

− 3.377*
− 3.362*
− 3.320*
− 3.352*
− 4.579*
− 3.435*
result confirms that the impact of FDI on ecological footprint

CADF
is positive and significant. The outcome reveals that FDI in-
tensifies human ecological demands and foreign plants

− 4.395 *
− 4.678*

− 4.408*
− 4.386*
− 5.900*
− 4.123*
installed in BRI countries may not use efficient methods of
CIPS

production that require more resources and use a large amount

of energy, in turn, an increase in environmental degradation.
− 22.725* [0.000]
− 20.267* [0.000]
− 21.349* [0.000]
− 19.727* [0.000]
− 32.230* [0.000]
− 16.818* [0.000]
Finally, the coefficient of urbanization has a significant posi-
tive effect on ecological footprint. The outcome is expected
because current development in BRI countries urges rural
population to move to urban areas in order to get better job
PP

opportunities, higher living standard, and better public facili-

ties. This shift requires more resources in urban areas to ac-
− 2.177 − 2.401 − 13.8790* [0.000] − 13.152 * [0.000]
− 1.640 − 1.825 − 14.7074* [0.000] − 13.368* [0.000]
− 2.206 − 2.375 − 14.2010* [0.000] − 13.454* [0.000]
− 1.1825 [0.1185] − 1.0717 [0.1419] − 0.5587 [ 0.2882] − 2.214 − 2.268 − 14.981* [0.000] − 13.928* [0.000]

− 3.789 − 2.722 − 24.958* [0.000] − 21.871* [0.000]

− 2.256 − 2.383 − 13.757 * [0.000] − 12.775* [0.000]

− 14.571* [0.000]
− 4.870* [0.000]

commodate people by offering a better drainage system, san-

itation, road infrastructure, and uncontaminated water supply.
As reported by Danish et al. (2018a), urbanization leads to an
ADF

increase of the transportation of goods and raw material from

rural to urban land that results in a huge volume of production
to fulfill the need of the urban population. In this sense, ur-
− 1.258 − 1.710 − 5.0262* [0.000]
− 1.805 − 1.668 − 16.901* [0.000]
First difference

banization increases ecological footprint.

To check the robustness of regression estimates from
Driscoll-Kraay standard errors, we have applied the Newey-
IPS

West standard errors regression method, and the results are

summarized in Table 4. It can be seen that the results are
CADF

consistent with Driscoll-Kraay standard errors method.

CIPS

Conclusion and policy recommendation

This study advances a framework to explore the impact of

1.41996 [ 0.9222] 3.22016 [0.9994]
1.20547 [0.8860]

− 12.040 [0.000]
− 0.6584 [ 0.2551] − 0.6014 [0.2738] 0.9467 [0.8281]

− 1.6644 [ 0.0480] − 1.4143 [0.0786] 0.6102 [ 0.729]

0.814 [ 0.207]

financial development on ecological footprint in BRI coun-

5.842 [1.000]

tries during the time from 1990 to 2016. To analyze this im-
pact, the study uses Driscoll-Kraay panel regression model.
Moreover, we have decomposed financial development into
PP

three proxies to ensure the validity and reliability of the re-

0.46672 [0.6796]

sults. The main findings of this study can be summarized;

− 7.003 [0.000]

1.5731 [ 0.942]
3.6118 [0.999]

financial development has a positive impact on ecological

*1% level of significance. **5% level of significance

footprint implying that financial development increases eco-

ADF

logical footprint in BRI countries. Economic growth is posi-

tively linked to ecological footprint. FDI cause to increase
ecological footprint. The impact of urbanization on ecological
0.33087 [0.6296]

1.49289 [0.9323]
− 7.1016 [0.000]

0.4055 [ 0.657]

footprint is positive and statistically significant.

3.722 [0.999]

The empirical findings of the study are directed towards

Panel unit root test

some important policy implications. In this regard, such as

Level

IPS

central banks should restrict their financial institutes not to

issue funds for those projects which are not environmen-
Log FDfinancial sector
Log FDbanking sector
Log FDprivate sector

tally friendly and should develop a check and balance

mechanism to ensure that allocated financial resources
Log GDP

are not invested at the cost of environmental quality.

Variables

Log FDI

Log Urb
Log EC
Log EF
Table 2

Carbon pricing should be introduced for those who uti-

lized outdated technology for the production of dirty and
Environ Sci Pollut Res (2019) 26:6199–6208 6205

Table 3 The result of regression

with Driscoll-Kraay standard Variables Dependent variable = ecological footprint
errors
FDfinancial sector FDprivate sector FDbanking sector

Coefficient Prob. Coefficient Prob. Coefficient Prob.

Constant − 1.7393* 0.000 − 1.7304* 0.000 − 1.7302 0.000

Log EC 0.4739* 0.000 0.4732* 0.000 0.4744* 0.000
Log GDP 0.1076* 0.000 0.1014* 0.000 0.0996* 0.000
Log URB 0.1252* 0.000 0.1319* 0.000 0.1320* 0.000
Log FDI 0.0295*** 0.070 0.0296*** 0.061 0.0295*** 0.061
Log FDfinancial sector 0.0222** 0.022 – – – –
Log FDprivate sector – – 0.0271** 0.014 – –
Log FDbanking sector – – – – 0.0291* 0.009
F-statistic 4106.07 4239.78 4307.11
Prob. F-statistic 0.0000 0.0000 0.0000
R2 0.8678 0.8682 0.8683
RMSE 0.1137 0.1135 0.1134
N 1593 1593 1593
Groups 59 59 59

*Significance at the 1% level. **Significance at the 5% level. ***Significance at the 10% level

investment in those project dependent on dirty technology.
Moreover, capital investments are required in R&D that
brings energy-efficient technologies. In the same way, al-
location of resources for renewable energy, energy effi-
ciency, and energy savings projects should reduce envi-
ronmental degradation. Furthermore, BRI countries should
increase regulations to control the activities of the private
sector that pollute the environment as a result of credit
provided by the banking sector.
The BRI countries should design policies to promote envi-
ronmental friendly industries by offering more incentives to
non-polluted industries and imposing a tax on polluting indus-
tries. Similarly, governments in investigating countries should
increase dumping duties on outdated technology that is harm-
ful to the environment. In this regard, BRI countries should
encourage international firms to adopt the latest technology
and production methods that are least harmful to the
environment.

Table 4 The result of regression

with Newey-West standard errors Variables Dependent variable = ecological footprint

FDfinancial sector FDprivate sector FDbanking sector

Coefficient Prob. Coefficient Prob. Coefficient Prob.

Constant − 1.7393* 0.000 − 1.7304* 0.000 − 1.7302* 0.000

Log EC 0.4740* 0.000 0.4732* 0.000 0.4744* 0.000
Log GDP 0.1076* 0.000 0.1014* 0.000 0.0996* 0.000
Log URB 0.1252* 0.000 0.1320* 0.000 0.1320* 0.000
Log FDI 0.0295* 0.000 0.0296* 0.000 0.0294* 0.000
Log FD financial sector 0.0221** 0.013 – – – –
Log FD private sector – – .0271* 0.002 – –
Log FD banking sector – – – – .0291* 0.002
F-statistic 2904.04 2861.37 2842.69
Prob. F-statistic 0.0000 0.0000 0.0000
N 1593 1593 1593

*Significance at the 1% level. **Significance at the 5% level.

6206 Environ Sci Pollut Res (2019) 26:6199–6208

On a final note, this study leaves room for future re-
searchers in exploring the effect of financial development on
ecological footprint by incorporating potential variables like
globalization and institutional quality. Another direction for
future research is to study the same model on a different panel
of countries or on a single country.
Acknowledgment The authors want to say thanks to the Editor Dr.
Philippe Garrigues as well as to the two anonymous referees for
providing valuable suggestions, which substantially improved this
article.
Funding information The study is supported by the Projects of the
National Social Science Foundation of China (No: 15XJL006).

Appendix

Table 5 List of countries

Albania Egypt, Arab Rep. Kyrgyz Republic Philippines United Arab Emirates
Armenia Estonia Lithuania Poland Vietnam
Azerbaijan Ethiopia Lebanon Qatar Yemen, Rep.
Bahrain Georgia Macedonia, FYR Romania
Bangladesh Hungary Malaysia Russian Federation
Belarus India Moldova Serbia
Bosnia and Herzegovina Indonesia Morocco Slovenia
Brunei Darussalam Iran, Islamic Rep. Mongolia South Africa
Bulgaria Iraq Myanmar Slovak Republic
Cambodia Israel Nepal Sri Lanka
China Jordan New Zealand Tajikistan
Colombia Kazakhstan Oman Thailand
Croatia Korea, Rep. Pakistan Turkey
Czech Republic Kuwait Panama Ukraine

Publisher’s Note Springer Nature remains neutral with regard to jurisdictional
claims in published maps and institutional affiliations.
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