Digital financial inclusion in the context of financial development: Environmental destruction or the driving force for technological advancement

Abstract

This study employs the panel vector autoregression model to investigate how digital financial inclusion (DFI), technological advancement, environmental conditions, and economic growth are interconnected in 16 low financial development countries (LFDCs) and 29 high financial development countries (HFDCs) from 2015 to 2020. The results of the impulse response function reveal that in LFDCs, DFI enhances environmental quality while promoting technological progress. However, this improvement in environmental quality results in a decline in economic growth in these countries. In HFDCs, the promotion of DFI results in economic growth; however, it is accompanied by a decrease in environmental quality. Furthermore, the results of variance decomposition demonstrate that the interconnection among DFI, economic growth, environmental quality, and technological progress is more closely related in LFDCs than in HFDCs. Based on the findings, we recommend relevant policy implications for the respective country groups.