Financial Inclusion and CO2 Emissions: Examining Linkages in South Asian Countries

Abstract

This study aims to investigate the impact of financial inclusion, together with urbanization, trade openness, industrialization and energy intensity on environmental quality as proxied by CO2 emissions in South Asian countries from 2004 to 2018. This study constructed a multidimensional time-varying financial inclusion index to measure the level of financial inclusion. The long-run association between financial inclusion and CO2 emissions is examined by using the Fully Modified Ordinary Least Square (FMOLS) and Dynamic Ordinary Least Square (DOLS) approaches. The findings show that financial inclusion is increasing CO2 emissions. Similarly, energy consumption and urbanization have a positive impact on carbon emissions. Industrialization and trade openness have a negative impact on carbon emissions. Further, the Dumitrescu-Hurlin panel causality test shows that financial inclusion is the main cause of CO2 emissions. On the base of the findings, it is recommended that the South Asian governments and policymakers must adopt greener environmental policies.