FINANCIAL DEVELOPMENT, TECHNOLOGICAL INNOVATION, AND ENVIRONMENTAL DEGRADATION: EVIDENCE FROM LOWER-MIDDLE-INCOME COUNTRIES IN ASIA

Ngoc Toan Bui; My-Linh Thi Nguyen; Bao-Chau Xuan  Nguyen

doi:10.2478/eoik-2025-0062

Authors

Ngoc Toan Bui University of Finance – Marketing https://orcid.org/0000-0002-0595-3172
My-Linh Thi Nguyen University of Finance – Marketing https://orcid.org/0000-0001-7475-2502
Bao-Chau Xuan Nguyen

DOI:

https://doi.org/10.2478/eoik-2025-0062

Keywords:

Ecological footprint, environmental degradation, financial development, lower-middle-income, technology innovation

Abstract

This study analyzes the causal relationship between financial develop-

ment and technological innovation, considering their impact on envi-

ronmental degradation. The data sample covers nineteen lower-mid-

dle-income countries in Asia over the period 2000-2021. By using

the panel vector autoregression (PVAR), the authors demonstrate the

close relationship between financial development and technological

innovation. Specifically, technological innovation fosters financial

development in both the short and long term, while the latter plays a

vital role in driving the former over the long term. Furthermore, finan-

cial development is reported to worsen environmental degradation in

these countries in both the short and long run. These findings imply

that while financial development provides essential financial resourc-

es for technological innovation, it may also contribute to environmen-

tal degradation by stimulating business activities, investment, and

energy consumption. Meanwhile, technological innovation promotes

financial development but has not significantly improved the ability

to mitigate environmental degradation in these countries. These find-

ings align with the characteristics of lower-middle-income countries,

where financial resources for business expansion and technological

innovation are prioritized, but measures to stop environmental deg-

radation remain limited. In light of the findings, the study provides

recommendations for governments and policymakers in these econo-

mies, emphasizing the need to promote financial development coupled

with minimizing environmental degradation, particularly by further

innovating technology to achieve substantial environmental benefits.

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FINANCIAL DEVELOPMENT, TECHNOLOGICAL INNOVATION, AND ENVIRONMENTAL DEGRADATION: EVIDENCE FROM LOWER-MIDDLE-INCOME COUNTRIES IN ASIA

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