Dissecting the relationship among ecological footprint, financial crises, globalization and economic growth

Abstract This paper investigates the dynamic relationship among ecological footprint indicators, the frequency of financial crises, globalization and economic growth on the global level during 1970–2019. The analysis builds on the local projections methodology. A higher frequency of financial crises involves a decline in the ecological footprint indicators. In its turn, environmental degradation increases the frequency of financial crises, particularly, banking and currency ones. The financial crises driven by environmental degradation dampen global economic growth, hampering non-environmental sustainable development. The ecological footprint indicators also exhibit bidirectional linkages with global economic growth and globalization. Globalization and economic growth first invigorate ecological footprint, but then the latter starts to inhibit the former phenomena. Thus, environmental sustainability cannot be improved just by deepening globalization and accelerating global economic growth. A mix of environmental policy stringency and green macroprudential policies can improve global ecological footprint indicators and decrease the frequency of financial crises.