Finance as a Source of Ecological Quality: Islamic Ethics of Environment and Empirical Evidence

This chapter responds to the need for ‘‘a paradigm shift from belief to behavior’’ to preserve the environment with a particular focus on finance as a source of ecological quality. The chapter provides a comparative analysis of financial development and ecological footprint nexus for Organization of Islamic Cooperation (OIC) and non-OIC countries using a novel index of ecological quality and Islamic ethics of the environment. The empirical analysis is based on panel data estimators. The chapter uses three measures of financial development namely “domestic credit to private sector, domestic credit to private sector by banks, and domestic credit provided by financial sector.” The results show that the impacts of financial development on the environment are heterogeneous across OIC and non-OIC countries. Financial development improves the quality of the environment by reducing the ecological footprint in OIC countries, whereas it deteriorates the quality of the environment in non-OIC countries. These results have diverse implications for OIC and non-OIC countries. Financial institutions’ priorities for environmental quality are important to shape the effects of financial sector on the environment. Finally, the chapter concludes that, as believers, Muslims are duty bound to achieve a higher level of environmental protection and preservation of natural resources.