This paper analyses how financial development affects the loss of biodiversity. In our analysis, we built upon Guiso, Sapienza and Zingales (AER-2004), who find that social capital (instrumented by electoral participation and blood donation) improves the financial development, through enhancement of trust among the economic actors. We document a negative relationship between social capital and natural capital, within the context of Italy. Instrumenting financial development with different measures of social capital, we find support for the Environmental Kuznets Curve (EKC) hypothesis: there is an inverted U-shaped relationship between the level of biodiversity degradation and the economic growth. Economic development initially causes deterioration in the biodiversity, which then eases and improves as the economic development increases. Our findings are robust to various measures of biodiversity, namely Mean Species Abundance, Biodiversity Intactness Index, Deviation from Potential Natural Vegetation, and a measure obtained by applying Principal Component Analysis to the above-mentioned biodiversity measures.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5563098
with O. Karakaş (University of Cambridge, Judge Business School) and A. Widmaier (University of Cambridge)
Annalisa Tonetto 