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ORIGINAL RESEARCH ARTICLE

Impacts of financial development and economic growth matter in environmental sustainability: Empirical insights from Vietnam

Pham Dinh Long1* ,  Pham Thi Bich Ngoc1 ,  Nguyen Huynh Mai Tram2
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1 UEH.ISB Honours College, University of Economics Ho Chi Minh City, Dien Hong, Ho Chi Minh City, Vietnam
2 Graduate School, Ho Chi Minh City Open University, Xuan Hoa, Ho Chi Minh City, Vietnam
AJWEP, 026170115 https://doi.org/10.36922/AJWEP026170115
Received: 24 April 2026 | Revised: 16 June 2026 | Accepted: 17 June 2026 | Published online: 7 July 2026
(This article belongs to the Special Issue Frontiers in Sustainable Development of Ecology and Environment)
© 2026 by the Author(s). This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution 4.0 International License ( https://creativecommons.org/licenses/by/4.0/ )
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Abstract

As an emerging economy with rapid growth and financial deepening, Vietnam offers a critical case for environmental-economic analysis. This study investigates the long-run relationship between financial development, economic growth and environmental sustainability in Vietnam over 1990–2020. Using two environmental indicators (per-capita CO2 emissions and the per-capita ecological footprint) and a composite financial development index together with energy consumption, trade openness, urbanisation and foreign direct investment as control variables, we estimated long-run elasticities by fully modified ordinary least squares (OLS), dynamic OLS, and canonical cointegrating regression, and tested the environmental Kuznets curve (EKC) hypothesis with a squared per-capita-income term. Cointegration was assessed using the Johansen and Engle–Granger procedures; structural breaks were tested using the Zivot–Andrews endogenous-break procedure; and a vector error-correction model was used to recover long-run equilibrium dynamics. Financial development is associated with lower CO2 emissions but with a higher ecological footprint, suggesting that the two indicators capture distinct dimensions of environmental pressure. Per-capita income remains the dominant driver of both indicators, with CO2’s elasticity above unity. Third, the EKC takes a U-shaped form for the ecological footprint, with an estimated turning point near US$2,062 (in constant 2015 prices); Vietnam currently sits above this threshold and on the rising segment of the curve. Disaggregating the financial development index shows that capital-market deepening, rather than banking depth or access, exerts the stronger environmental effect. The results support a green-finance policy mix that targets capital-market composition and energy intensity, and are of direct relevance to Vietnam’s National Green Growth Strategy 2021–2030 and net-zero-by-2050 commitment.

Graphical abstract
Keywords
Financial development
Economic growth
Environmental sustainability
Vietnam
Ecological footprint
Carbon dioxide emissions
Environmental Kuznets curve
Doi Moi
Funding
This research is funded by the WSU.UEH research grant, University of Economics Ho Chi Minh City (UEH), Vietnam.
Conflict of interest
The authors declare no conflict of interest.
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Asian Journal of Water, Environment and Pollution, Electronic ISSN: 1875-8568 Print ISSN: 0972-9860, Published by AccScience Publishing
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