Financial Development, Exports, and Industrial Pollution: Evidence from Lower and Upper Middle-Income Countries

Abstract

This study aims to investigate the relationship between financial development (FD), exports, and industrial pollution by applying OLS, fixed effects (FE), random effects (RE), and GMM models for 36 upper-middle-income countries (UMICs) and 38 lower-middle-income countries (LMICs) from 1990 to 2019. The findings of the OLS indicate that financial development (FD), exports, and other factors including energy use, capital, and urban population significantly increase industrial pollution in UMICs and LMICs. The empirics of FE, RE, and GMM models also confirmed that exports, FD, and energy use have harmful effects on the environment. The study suggests that financial development should be directed toward projects and sources of energy that are favorable to the environment.