Does financial inclusion impact CO2 emissions? Evidence from Asia

Thai-Ha Le, Ha-Chi Le and Farhad Taghizadeh-Hesary ()

Finance Research Letters, 2020, vol. 34, issue C

Abstract: This study examines the impact of financial inclusion on CO2 emissions using a sample of 31 Asian countries during the period 2004–2014. Three composite indicators for financial inclusion are constructed using principal component analysis (PCA) based on normalized variables. To estimate the model, we adopted the Hoechle (2007) procedure which produces Driscoll-Kraay standard errors for linear panel models that are not only heteroskedasticity consistent but also robust to general forms of cross-sectional dependence. We find that income, energy consumption, industrialization, urbanization, FDI and financial inclusion appear to have led to higher emissions of CO2 in the region. Meanwhile, increased openness to trade seems to have reduced CO2 emissions. The findings are qualitatively robust to different proxies of financial inclusions and reasonable modifications to specification of the model. The empirical results imply that there are currently no policy synergies between growing financial inclusion and mitigating CO2 emissions. Thus, financial inclusion should be integrated into climate change adaptation strategies at local, national and regional levels, especially to address the side effect of higher CO2 emissions associated with improved financial inclusion.

Keywords: Financial inclusion; Climate change; CO2 emissions; Panel data analysis; Asia (search for similar items in EconPapers)
JEL-codes: C33 O16 O57 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (136)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:34:y:2020:i:c:s1544612319314345

DOI: 10.1016/j.frl.2020.101451

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