Evaluating the impact of Environmental Quality Indicators on The Financial Development in Iran

The financial sector plays a central role in economic growth and development, as well as a mediating role in allocating resources to all sectors of the economy, by reducing financing costs and encouraging savings and efficient use of them. Given global warming and global climate change simultaneously with the goal of achieving optimal economic growth, attention to environmental protection and reduction of environmental pollutants is one of the policy makers' concerns. The purpose of this study was to examine the effect of environmental quality indices on financial development indicators in Iran during the period 1970-2015 using the seemingly unrelated Regression model. For this purpose, some environmental quality indicators, including agricultural production, population density, carbon dioxide emissions, energy use, and three indices of financial development including broad money supply, domestic credit to the private sector, and consumer price index were used, which were estimated separately for each of the financial development indices. The results showed that population density and energy consumption had a positive and significant effect on financial development indicators. On the other hand, carbon dioxide emissions, agricultural production and fossil fuel energy use have a significant and negative effect. Considering the findings of this study can play an important role in sectoral policy making and reducing the effects of environmental degradation by economic sectors. These results are important for policymakers in designing energy resource management policies and sustainable financial and economic development.