IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i2p774-d1570852.html
   My bibliography  Save this article

Modeling and Analysis of the Impact of Quality Growth and Financial Development on Environmental Sustainability: Evidence from EU Countries

Author

Listed:
  • Furkan Yıldırım

    (Faculty of Applied Sciences, Department of Finance and Banking, Akdeniz University, Antalya 07600, Turkey)

  • Ulaş Ünlü

    (Faculty of Applied Sciences, Department of Finance and Banking, Akdeniz University, Antalya 07600, Turkey)

  • Ayhan Kuloğlu

    (Nevşehir Vocational School, Department of Accounting and Taxation, Nevşehir Hacı Bektaş Veli University, Nevşehir 50300, Turkey)

  • Özkan Çıtak

    (Department of Finance, Banking, and Insurance, Vocational School of Social Sciences, Akdeniz University, Antalya 07600, Turkey)

Abstract

This study examines the impact of financial development and quality growth on environmental sustainability in European Union (EU) countries, making a significant contribution to the existing literature by introducing a composite index for environmental sustainability and emphasizing quality growth as a more inclusive alternative to traditional economic growth indicators. Unlike conventional studies, which often measure environmental sustainability using single indicators, this research introduces a composite index that includes both environmental damage (e.g., carbon emissions) and protective factors (e.g., forest area, renewable energy consumption). This innovative approach provides a more holistic assessment of environmental sustainability, distinguishing this study from existing research. The results emphasize the role of a robust financial system in promoting environmental sustainability, as each unit increase in financial development is positively correlated with the environmental sustainability ratio, encouraging investments and projects that prioritize environmental goals. In addition, the study shows that quality growth, which takes into account social welfare and resource efficiency in addition to economic expansion, is crucial for promoting sustainability. By focusing on quality growth, this study shifts the paradigm from mere quantitative economic expansion to a more comprehensive understanding of growth that integrates social and environmental dimensions. This nuanced approach contrasts with traditional models that focus on quantitative economic growth, highlighting that both quality growth and financial development are critical to supporting long-term environmental goals. This research provides actionable insights for policymakers by emphasizing the need for financial reforms, such as green bond markets and sustainable credit mechanisms, to support sustainable development.

Suggested Citation

  • Furkan Yıldırım & Ulaş Ünlü & Ayhan Kuloğlu & Özkan Çıtak, 2025. "Modeling and Analysis of the Impact of Quality Growth and Financial Development on Environmental Sustainability: Evidence from EU Countries," Sustainability, MDPI, vol. 17(2), pages 1-18, January.
  • Handle: RePEc:gam:jsusta:v:17:y:2025:i:2:p:774-:d:1570852
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/2/774/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2071-1050/17/2/774/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jalil, Abdul & Feridun, Mete, 2011. "The impact of growth, energy and financial development on the environment in China: A cointegration analysis," Energy Economics, Elsevier, vol. 33(2), pages 284-291, March.
    2. Omri, Anis, 2013. "CO2 emissions, energy consumption and economic growth nexus in MENA countries: Evidence from simultaneous equations models," Energy Economics, Elsevier, vol. 40(C), pages 657-664.
    3. Muhammad Shahbaz & Smile Dube & Ilhan Ozturk & Abdul Jalil, 2015. "Testing the Environmental Kuznets Curve Hypothesis in Portugal," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 475-481.
    4. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    5. Safi, Adnan & Kchouri, Bilal & Elgammal, Walid & Nicolas, Melhim Khoury & Umar, Muhammad, 2024. "Bridging the green gap: Do green finance and digital transformation influence sustainable development?," Energy Economics, Elsevier, vol. 134(C).
    6. Selden Thomas M. & Song Daqing, 1994. "Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 147-162, September.
    7. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 239-253.
    8. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 353-377.
    9. Agras, Jean & Chapman, Duane, 1999. "A dynamic approach to the Environmental Kuznets Curve hypothesis," Ecological Economics, Elsevier, vol. 28(2), pages 267-277, February.
    10. Demary, Markus & Neligan, Adriana, 2019. "Defining green bonds the danger of neglecting the issuer side: Looking at problems and solutions," IW policy papers 2/2019, Institut der deutschen Wirtschaft (IW) / German Economic Institute.
    11. Beck, Nathaniel & Katz, Jonathan N., 1995. "What To Do (and Not to Do) with Time-Series Cross-Section Data," American Political Science Review, Cambridge University Press, vol. 89(3), pages 634-647, September.
    12. Al-Mulali, Usama & Ozturk, Ilhan, 2015. "The effect of energy consumption, urbanization, trade openness, industrial output, and the political stability on the environmental degradation in the MENA (Middle East and North African) region," Energy, Elsevier, vol. 84(C), pages 382-389.
    13. Dinda, Soumyananda, 2004. "Environmental Kuznets Curve Hypothesis: A Survey," Ecological Economics, Elsevier, vol. 49(4), pages 431-455, August.
    14. Mohamed Amine Boutabba, 2014. "The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy," Post-Print hal-02877966, HAL.
    15. Boutabba, Mohamed Amine, 2014. "The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy," Economic Modelling, Elsevier, vol. 40(C), pages 33-41.
    16. Edward B. Barbier, 2005. "Natural Resource-Based Economic Development in History," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 6(3), pages 103-152, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Iftikhar Yasin & Nawaz Ahmad & Muhammad Aslam Chaudhary, 2021. "The impact of financial development, political institutions, and urbanization on environmental degradation: evidence from 59 less-developed economies," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(5), pages 6698-6721, May.
    2. Shahbaz, Muhammad & Haouas, Ilham & SBIA, Rashid & Ozturk, Ilhan, 2018. "Financial Development-Environmental Degradation Nexus in the United Arab Emirates: The Importance of Growth, Globalization and Structural Breaks," MPRA Paper 87365, University Library of Munich, Germany, revised 11 Jun 2018.
    3. Huaping Sun & Samuel Attuquaye Clottey & Yong Geng & Kai Fang & Joshua Clifford Kofi Amissah, 2019. "Trade Openness and Carbon Emissions: Evidence from Belt and Road Countries," Sustainability, MDPI, vol. 11(9), pages 1-20, May.
    4. Jaforullah, Mohammad & King, Alan, 2017. "The econometric consequences of an energy consumption variable in a model of CO2 emissions," Energy Economics, Elsevier, vol. 63(C), pages 84-91.
    5. Myo Myo Htike & Anil Shrestha & Makoto Kakinaka, 2022. "Investigating whether the environmental Kuznets curve hypothesis holds for sectoral CO2 emissions: evidence from developed and developing countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(11), pages 12712-12739, November.
    6. Kangyin Dong & Xiucheng Dong & Qingzhe Jiang, 2020. "How renewable energy consumption lower global CO2 emissions? Evidence from countries with different income levels," The World Economy, Wiley Blackwell, vol. 43(6), pages 1665-1698, June.
    7. Muhammad Shahbaz & Avik Sinha, 2019. "Environmental Kuznets curve for CO2emissions: a literature survey," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 46(1), pages 106-168, January.
    8. Muhammad Bilal Khan & Hummera Saleem & Malik Shahzad Shabbir & Xie Huobao, 2022. "The effects of globalization, energy consumption and economic growth on carbon dioxide emissions in South Asian countries," Energy & Environment, , vol. 33(1), pages 107-134, February.
    9. Tunahan Hacıimamoğlu & Vedat Cengiz, 2024. "Are Natural Resource Rents and Renewable Energy Consumption Solutions for Environmental Degradation? Fresh Insights from a Modified Ecological Footprint Model," Sustainability, MDPI, vol. 16(7), pages 1-20, March.
    10. Ali Acaravci & Guray Akalin, 2017. "Environment economic Growth Nexus: A Comparative Analysis of Developed and Developing Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 7(5), pages 34-43.
    11. Churchill, Sefa Awaworyi & Inekwe, John & Ivanovski, Kris & Smyth, Russell, 2018. "The Environmental Kuznets Curve in the OECD: 1870–2014," Energy Economics, Elsevier, vol. 75(C), pages 389-399.
    12. Ozcan, Burcu, 2013. "The nexus between carbon emissions, energy consumption and economic growth in Middle East countries: A panel data analysis," Energy Policy, Elsevier, vol. 62(C), pages 1138-1147.
    13. Shahbaz, Muhammad & Sinha, Avik, 2019. "Environmental Kuznets Curve for CO2 emission: A survey of empirical literature," MPRA Paper 100257, University Library of Munich, Germany, revised 2019.
    14. Yilmaz Bayar & Laura Diaconu (Maxim) & Andrei Maxim, 2020. "Financial Development and CO 2 Emissions in Post-Transition European Union Countries," Sustainability, MDPI, vol. 12(7), pages 1-15, March.
    15. Sabuj Kumar Mandal & Devleena Chakravarty, 2017. "Role of energy in estimating turning point of Environmental Kuznets Curve: an econometric analysis of the existing studies," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 19(2), pages 387-401, October.
    16. Cerdeira Bento, João Paulo, 2014. "The determinants of CO2 emissions: empirical evidence from Italy," MPRA Paper 59166, University Library of Munich, Germany.
    17. Edmond Noubissi Domguia & Henri Njangang Ndieupa, 2017. "Croissance économique et dégradation de l'environnement au Cameroun," African Development Review, African Development Bank, vol. 29(4), pages 615-629, December.
    18. Shahbaz, Muhammad & Haouas, Ilham & Hoang, Thi Hong Van, 2019. "Economic growth and environmental degradation in Vietnam: Is the environmental Kuznets curve a complete picture?," Emerging Markets Review, Elsevier, vol. 38(C), pages 197-218.
    19. Ioana Andrada Moldovan (Gavril), 2015. "Does the Financial System Promote Sustainable Development? Evidence from Eastern European Countries," Central European Business Review, Prague University of Economics and Business, vol. 2015(2), pages 40-47.
    20. Chris Belmert Milindi & Roula Inglesi-Lotz, 2023. "Impact of technological progress on carbon emissions in different country income groups," Energy & Environment, , vol. 34(5), pages 1348-1382, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:17:y:2025:i:2:p:774-:d:1570852. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.