DOI: 10.12688/f1000research.166902.3 ISSN: 2046-1402

Financial Sector Development, Institutional Quality and Environmental Degradation in Namibia

Brigitte Fikunawa, SYDEN MISHI
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Background Environmental degradation, which is the deterioration of ecological quality due to increased unsustainable economic activities, is a global concern that poses a threat to humanity. Like many African countries, Namibia is severely affected by environmental degradation, an arid, lower-middle-income country in sub-Saharan Africa with 16 percent land covered by desert. Therefore, understanding the dynamics between financial development, institutional quality, and environmental degradation. Methods This study examines the impact of financial development and institutional quality on environmental degradation in Namibia, using time series data spanning the period from 1990 and 2023. The study used ARDL approach to examine the short and long run relationship. Results The findings show that institutional quality increases environmental degradation, as it has a scale effect whereby institutional quality reduces barriers and encourages mining, oil and gas and carbon-intensive industrialisation. This aligns with the notion that climate change is not a result of only economic activities, highlighting that institutional strength alone cannot guarantee reduction in environmental degradation, but it depends whether they prioritise ecological sustainability or economic development. However, financial sector development often supports novel and sophisticated investment products and preserves the environment supporting green technology and renewable energy. Conclusion Therefore, this study recommends that Namibia strengthen institutional and regulatory frameworks to promote environmental sustainability through a just transition approach, while supporting financial innovations such as green bonds and emission credit mechanisms to mitigate environmental degradation. Additionally, the study encourages environmental, social, and governance (ESG)-led business investments through enhanced sustainability reporting requirements for listed firms, as these measures support the principles of sustainable development and the triple bottom line rather than prioritising profit maximisation alone.

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