Examining the impact of financial development on load capacity factor (LCF): System GMM analysis for Asian economies

Contingent upon the empirical work done, the current study seeks to investigate the environmental load capacity factor (LCF) consequences of financial development in three different ways for 48 Asian economies. We used the two-step system generalized method of moments (GMM) technique to analyze the data from 1996 to 2020. Initially, we investigated the environmental consequences of financial development by considering six dimensions of financial development. Then, we modified the original environmental Kuznets curve (EKC) into the financial market-based EKC (FM-EKC) to compare short- and long-run environmental consequences of financial development. Ultimately, the study explores the intersecting marginal effects of financial development and institutional quality on environmental quality. Our results show that foreign direct investment (FDI), financial development, economic growth, and environmental quality (LCF) exhibit statistically significant long-run co-integrating relationships in the studied economies. This study demonstrated how FDI, financial development, and economic expansion contribute to environmental deterioration in 48 Asian countries. The nexus between finance and sustainability is moderated by the institutional quality and the regulatory environment, resulting in the FM-EKC idea. The key findings of system GMM analysis confirmed that Asian countries have an inverted U-shaped FM-EKC, which we attempt to explain with three different justifications. This study showed that the strong institutional structure in an economy guarantees the favorable environmental consequences of financial development in the long run. It also suggested that a healthier education structure of an economy can help improve the environmental quality of an economy.