The Nonlinear Impact of Financial Development and Institutions Quality on Green GDP: A Case Study of OIC Countries

Abstract

Our study investigates the linear and nonlinear impacts of financial development and institutional quality on green GDP using some macroeconomic factors, with an emphasis on OIC countries. We evaluate the effects of financial development, institutional quality, investment, trade openness, and population on green GDP from 2016 to 2019 using the System GMM (SYS-GMM) estimator. According to the study's empirical findings, institutional quality positively correlates with green GDP. In addition, we found that financial development, investment, and trade openness significantly negatively affect green GDP. According to our research, a 1% increase in institutional quality leads to a 0.047% increase in green GDP. Accordingly, a 1% rise in investment and trade openness decreases green GDP by 0.018% and 0.097%, respectively. Despite the linear nexus, the projected data visualisation reveals a U-shaped relationship between institutional quality and green GDP. The results validate the link as a higher degree of institutional quality contributes positively to green GDP in OIC countries. Even though financial development contributed negatively to green GDP, OIC governments should emphasise preserving and expanding the quality of their institutions to increase and promote green GDP in effort to minimize environmental degradation.