Distributional Influence of Financial Development and Economic Growth on Environmental Sustainability in Nigeria: Evidence from Quantile ARDL Model.

Abstract:

This study investigates the distributional influence of financial development and economic growth on environmental sustainability in Nigeria. The study utlilized the novel quantile-based autoregressive distributed lag (QARDL) model. The findings reveal several critical insights: First, financial development significantly deteriorates environmental quality in both the short and long term, as evidenced by its positive impact on CO₂ emissions and ecological footprints across most quantiles—particularly at middle and upper quantiles where the effect intensifies. This confirms the distributional nature of financial development’s environmental impact, indicating that economic expansion through financial deepening has been accompanied by higher environmental costs. Second, the findings on economic growth support the Environmental Kuznets Curve (EKC) hypothesis, showing that environmental degradation initially rises with growth but eventually declines at higher levels of income. This transition point, however, appears to occur only at upper quantiles, suggesting that Nigeria is still in the earlier stages of the EKC trajectory Third, the findings support the presence of asymmetry in the growth-finance-environmental quality relationship and underscore the distributional nature of the relationship across different environmental states. The study recommends the introduction of environmental risk assessments and sustainability criteria in financial sector lending and investment decisions and incentivises green financing products such as renewable energy loans, sustainable infrastructure bonds, etc. Furthermore, the government should channel economic growth toward sectors with lower carbon intensity through targeted tax incentives and subsidies.