Financial development and environmental quality in developed countries: a systematic literature review

Studying the effect of financial development on environmental quality has become imperative in the modern world due to the climate change challenges. Hence, this systematic literature review provides a comprehensive overview of the existing body of knowledge on the nexus of financial development and environmental quality in developed countries. Three databases: Web of Science, Scopus, and Google Scholar were used to search the relevant articles in this domain. Finally, 20 journal articles qualified for the systematic literature review based on the pre-defined article inclusion criteria as per the Preferred Reporting Items for Systematic Reviews and Meta-analyses (PRISMA) framework. We found that a range of econometric approaches were used in all examined papers, employing a diverse range of proxy variables to model the relationship between financial development and environmental quality. Overall, the findings of the examined papers imply mixed evidence of this nexus in developed countries. We highlight the knowledge gap in this research domain examining the financial development and environmental quality link from different proxies.