Banking sector development and environmental degradation in the Economic Community of West African States: do technology effects matter?

Abstract

This paper contributes to the discussion on environmental degradation by exploring the connection between banking sector development and environmental degradation in the ECOWAS. In addition, we investigate the direction of causation between environmental degradation and its drivers and the technological effect of banking sector development on environmental degradation. We rely on a balanced panel dataset of 11 ECOWAS nations from 1990 to 2019. We present the following conclusions using the AMG estimator and the Driscoll–Kraay panel regression model. First, banking sector development reduces environmental degradation. Second, banking sector development has a deleterious technological effect on environmental quality. Thirdly, population and affluence were found to significantly promote environmental degradation, while the impact of technology was inconclusive. We further demonstrate a unidirectional causation association between the development of the banking sector and environmental degradation using the Dumitrescu and Hurlin causality analysis. Based on the study conclusions, numerous policy ramifications have been suggested for the ECOWAS nations to mitigate environmental degradation.