The Impact of Financialization on Environmental Pollution in Iran

In recent decades, in addition to the significant expansion of the financial sector with compared to the country's real sector, investment and transfer of monetary resources of non-financial firms and individuals to the financial markets have also increased. This phenomenon, called financialization, is considered one of the most influential factors affecting environmental pollution. The relationship between environmental pollution and many variables has been studied in internal studies. But, the impact of financialization on the environment has not been investigated in any research yet. According to the subject’s importance, the present paper aims to examine the financialization effect on environmental pollution in Iran during 1973-2019. The simultaneous equations system approach has been used to analyze the data. The findings showed that financialization has a positive and significant impact on environmental pollution. Energy consumption and economic growth have a positive and significant effect on environmental pollution, and economic growth squared leaves a negative and significant impact on environmental pollution. According to the results, is confirmed the Environmental Kuznets Curve hypothesis in the country. Also, the financialization process has increased the amount of energy consumption by raising the profitability and returns of active individuals in the financial sector and the growth of demand for energy-consuming products. On the other hand, financialization has driven an inability to use environmentally friendly technology and equipment by transmitting capital from the real sector to the financial sector. Hence, financialization has caused an increase in environmental pollution in Iran.