Investigating the relationship between financial inclusion and CO 2 emissions in G20 countries: a quantile-on-quantile approach

Rozina Shaheen

Social Responsibility Journal, 2025, vol. 21, issue 10, 2152-2172

Abstract: PurposeThe purpose of this study is to examine the relationship between financial inclusion and CO2 emissions in G20 countries from 1999 to 2022 while considering the roles of governance and economic diversification. By using a quantile-on-quantile (QQR) regression approach, this research aims to capture the dynamic and nonlinear interactions between financial inclusion and environmental outcomes. This study further investigates how governance quality, economic diversification, gross domestic product growth, energy intensity (EI) and urbanization influence emission trends. This study seeks to provide policy-relevant insights to harmonize financial inclusion strategies with sustainable economic growth and environmental objectives in the G20 context.Design/methodology/approachThis study investigates the relationship between financial inclusion and CO2 emissions in G20 countries from 1999 to 2022 using a QQR regression approach. This method captures dynamic and nonlinear interactions between financial inclusion and environmental outcomes across different quantiles of their distributions. The analysis reveals how the effects of financial inclusion on CO2 emissions vary at different levels, offering detailed insights. Additional control variables, such as gross domestic product growth, EI and urbanization, are included to account for their impact on emissions.FindingsThis study identifies an N-shaped relationship between financial inclusion and CO2 emissions, demonstrating that financial inclusion initially reduces emissions, later increases them and eventually stabilizes at advanced levels. Government effectiveness and economic diversification significantly affect CO2 emissions, highlighting the role of governance in enforcing environmental regulations and the potential of diversification to support green industries. EI and natural resource depletion also emerge as critical factors influencing emissions. These findings emphasize the importance of aligning financial growth with robust environmental policies, promoting green investments and fostering sustainable practices to achieve balanced economic progress and environmental sustainability.Originality/valueThis research enhances the literature on carbon emissions by integrating a broader range of determinants, including government effectiveness, economic diversification, EI and natural resource depletion. Analyzing CO2 emissions across 19 G20 countries from 1999 to 2022 using a QQR approach allows for capturing heterogeneous effects across different emission levels. This methodology emphasizes the role of institutional quality and diversified economies, offering a detailed understanding of their relationship with environmental outcomes. Overall, this comprehensive approach informs policy interventions to effectively mitigate carbon emissions and address climate change, enriching the academic discourse on environmental factors.

Keywords: Financial inclusion; Governance; Diversification; Environmental sustainability; G20 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:srjpps:srj-01-2025-0055

DOI: 10.1108/SRJ-01-2025-0055

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