From Smog to Sustainability: Financial Development and the Turning Point of the Environmental Kuznets Curve

This study investigates the nonlinear relationship between financial development (FD) and air pollution – conceptualised as the Finance-Environment Kuznets Curve (FEKC) – across 36 Asian economies (1996–2022). Using panel data, we examine multiple FD dimensions, including domestic credit, private bank credit, liquid liabilities, and stock market capitalisation, with PM2.5 as a proxy for pollution. Results confirm an inverted U-shaped FEKC for most indicators, indicating that early financial deepening worsens pollution, but later reduces it beyond identified thresholds. Institutional quality both directly lowers pollution and moderates the FD-environment nexus, weakening early adverse effects and accelerating later environmental gains, highlighting the importance of governance in green financial development.