Does financial inclusion limit carbon dioxide emissions? Analyzing the role of globalization and renewable electricity output

TLDR

Few studies have examined how financial inclusion influences carbon dioxide emissions, leaving a gap in the literature. This study investigates the impact of financial inclusion on CO₂ emissions, and the moderating roles of globalization and renewable electricity generation in the emerging seven economies from 2004 to 2016. Panel quantile regression, which addresses data non‑normality, is employed to estimate these relationships. Cointegration tests confirm long‑run links among CO₂, financial inclusion, renewable electricity, globalization, and growth; quantile analysis shows financial inclusion reduces emissions at the 25th and 50th percentiles but not at higher levels, while globalization and renewable electricity consistently curb emissions across all quantiles and support the EKC hypothesis, leading to recommendations for enhancing financial inclusion, globalization, and renewable capacity to lower CO₂ in the E7.

Abstract

Abstract On the role of financial inclusion in terms of promoting a sustainable environment, very limited number of studies are available in the existing literature. These studies do not directly address or link financial inclusion with carbon dioxide emissions. Therefore, this study aims to specifically investigate the effects of financial inclusion on carbon dioxide emissions along with the role of globalization and renewable electricity generation for the case of the emerging seven economies over the 2004–2016 period. This study uses panel quantile regression analysis for estimations, which takes into account the non‐normality issue of the data. The long‐run relationships among carbon dioxide emissions, financial inclusion, renewable electricity generation, globalization, and economic growth are confirmed by Kao and Johansen panel cointegration tests. Besides, the results from quantile regression analysis confirmed that financial inclusion is linked with carbon dioxide emission reductions at the 25th and 50th quantiles; however, it cannot explain the variations in the carbon dioxide emission levels at the 75th and 95th quantiles. Moreover, globalization and renewable energy electricity are found to curb carbon dioxide emissions at all quantiles. Further, the results confirmed the EKC hypothesis for E7 countries at all the quantiles. In line with these findings, this study recommends enhancing financial inclusivity, promoting globalization, elevating renewable electricity generation capacities, and ensuring greener economic growth to lower down the carbon dioxide emission levels across the E7 countries.