Impact of Financial Development, Green Technology, and R&D on Ecological Footprint in G7: Do Energy Efficiency and Inefficiency Matter Within the EKC Framework?

This research examines how financial development, energy efficiency and energy inefficiency, green technology, and research and development (R&D) affect environmental conditions and ecological footprint in the Group of Seven (G7) countries. The study combines two theoretical models, including the Environmental Kuznets Curve (EKC) and the Stochastic Impacts by Regression on Population, Affluence, and Technology (STIRPAT), within a unified framework. This study addresses a key gap in the literature by examining whether financial development follows a distinct nonlinear environmental pathway beyond the traditional income-based EKC framework. Using annual data from 1994 to 2023, the analysis applies the Cross-Sectional Autoregressive Distributed Lag (CS-ARDL) approach to account for cross-sectional dependence and long-run heterogeneity among G7 economies. The findings indicate that the G7 does not support the traditional EKC hypothesis, although a U-shaped relationship between environmental degradation and financial development exists. Energy-related factors play a central role in shaping environmental outcomes, with energy efficiency and green technology significantly alleviating environmental pressure, and green technology proving to be the most influential among them. While energy inefficiency is associated with greater environmental stress, its effect remains statistically insignificant, suggesting that efficiency improvements are more decisive than reductions in inefficiency. Beyond energy dynamics, financial development and R&D investment also contribute significantly to environmental improvement, highlighting the complementary role of technological progress and financial systems in promoting environmental sustainability. The robustness results confirm the main findings. Overall, the study underscores the critical role of technological innovation and energy efficiency in promoting sustainability and challenges the applicability of the traditional EKC framework in advanced economies. The findings contribute to a deeper understanding of the multifaceted relationships between financial development, energy efficiency and inefficiency, green technology, and R&D, and their implications for sustainable development.