Financial inclusion and carbon emissions in Asia: Implications for environmental sustainability

Abstract

This study explores how carbon emissions are affected by financial inclusion. Using a balanced panel data set of 26 Asian countries, we compute a composite index, through the principal component analysis (PCA) technique, of financial inclusion based on a set of attributes related to financial inclusion. Our main analysis also delineates the subsamples of developed and developing Asian economies. The results reveal a long (short)-run positive (negative) impact of financial inclusion on carbon emissions across the Asian countries. This finding is also true for the developed country subsample, implying nonlinearity in short- and long-run relationships. For the developing countries, a more pronounced long-run positive impact compared to developed countries is found. Furthermore, the pairwise causality test results indicate the existence of bi-directional causality between financial inclusion and carbon emissions. These findings have important policy implications, especially in the context of the strategic integration of financial inclusion and climate change strategies.

Keywords:

• Financial inclusion
• CO₂ emissions
• climate change
• sustainable development
• Asian countries

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Details can be found in the contribution of Working Group III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), https://www.ipcc.ch/report/ar6/wg3/.

2 One may choose between the approaches of mean group (MG) and pooled mean group (PMG) based on the Hausman test. In our case, PMG is more favourable.