Financialization and environmental policy as drivers of environmental technology in OECD economies

Abstract The United Nations’ Sustainable Development Goals urge a combined focus on economic development that account for improved environmental quality, thus prompting increased attention on the advancement of environmental-related technologies and innovations. Financialization (instrumentation of financial development, markets, and institutions), environmental policy, and trade openness are critical facets driving this agenda. While numerous factors influencing environmental technology advancement have been explored, the interplay of financialization and environmental technology growth is further advanced. This research examines this relationship across selected 26 Organisation for Economic Co-operation and Development (OECD) nations from 2000 to 2021 employing the 2-step system generalized method of moment (GMM) techniques. The results show that environmental policy, financial institutions, and markets foster environmental technology growth, while financial development and trade openness impede it. The study further unveils environmental policy effectively which facilitates the positive impact of financial development, markets, and institutions on environmental technology growth in these nations. Thus, this finding further hints on the relevance of financial institutions and adoption of environmental policy to the improvement of environmental-related technologies among the OECD economies. Moreover, effective environmental policies are essential to enhance the positive impacts of financial systems, directing resources toward sustainable investments and cleaner technologies. Integrating these policies with financial and trade strategies is crucial for achieving environmental sustainability objectives.