Financial development and environmental quality: The way forward

The present paper re-examines the asymmetric impact of financial development on environmental quality in Pakistan for the period 1985Q1 to 2014Q4. A comprehensive index of financial development is generated using Bank- and Stock market-based financial development indicators. The results show that inefficient use of energy adversely affects the environmental quality. This suggests adoption of energy efficient technology at both production and consumption levels. These technologies would be helpful to improve environmental quality, enhance the productivity in long-run and save energy. Bank-based financial development also impedes the environment. The government should encourage lenders to ease the funding for energy sector and allocate financial resources for environment friendly businesses rather than wasting them in consumer financing.