Financial Sector Development, Institutional Quality and Environmental Degradation in Namibia

<ns3:p>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 quality. Methods This study examines the impact of financial development and institutional quality on environmental quality 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, aligning with the notion that climate change is not a result of only economic activities, but also a result of weak institutions. However, financial sector development often supports novel and sophisticated investment products and preserves the environment. Conclusion Therefore, this study recommended that Namibia make collaborative efforts to implement effective regulations to strengthen the role of institutions and support financial innovation to address environmental degradation. Additionally, encouragement of environmental, societal, and governance (ESG) led business investments is needed.</ns3:p>