Banking and Insurance Sector Dynamics and Greening Considerations

This chapter examines how financial development influences environmental quality in West Africa. While the effect of financial development on environmental pollution has garnered considerable interest in recent years, a plethora of extant studies have dwelled on the banking sector and stock market indicators to gauge financial development, almost to the exclusion of the impact of the insurance sector. This study departs from the use of single-based indicators of financial development by employing a financial development index that captures the development of the banking sector and the insurance sector. Applying the fully modified least squares (FMOLS) technique, the findings show that financial development contributes to environmental degradation in West Africa. This holds for both banking sector development (BSD) and insurance sector development (INSD). The results also reveal that foreign direct investment (FDI) and economic growth (ECG) reduce environmental quality in the region. These findings highlight the need for policy interventions that integrate financial development with environmental sustainability, in line with the Sustainable Development Goals (SDGs), particularly Goals 8 (decent work and economic growth), 9 (industry, innovation, and infrastructure), and 13 (climate action).