THE IMPACT OF BANKING SECTOR DEVELOPMENT ON SUSTAINABLE ENVIRONMENTAL QUALITY: APPLICATION OF OECD COUNTRIES
Abstract: This study examines the impact of banking sector development, economic growth, energy consumption, and renewable energy consumption on environmental quality (CO2 emissions) and sustainability-oriented policy design in 26 OECD countries over the period 2001-2021. Utilizing robust econometric techniques for panel data, including LLC/IPS unit root tests, Pedroni/Kao cointegration, FMOLS/DOLS estimations, and Dumitrescu-Hurlin (2012) causality tests, this study aims to clarify the environmental role of the financial system. The empirical findings demonstrate that banking sector development and renewable energy consumption significantly reduce CO2 emissions, while economic growth leads to an increase in emissions. Furthermore, the causality analysis reveals a bidirectional relationship between banking sector development, renewable energy, and CO2 emissions. The study’s 20-year scope and robust methodology enhance its credibility. Its main contribution lies in revealing the environmental benefits of financial development—an underexplored topic offering valuable insights for green growth and sustainability-oriented policy design. These findings suggest that policymakers should promote green credit allocation and integrate ESG frameworks into banking regulations to accelerate the transition to sustainable energy.
Keywords: Banking Sector, CO2, Sustainable Environment, OECD Countries