How Financial Inclusion and Green Innovation Promote Green Economic Growth in Developing Countries

Sohail Abbas, Ghulam Dastgeer (), Samia Nasreen, Shazia Kousar (), Urooj Riaz, Saira Arsh and Muhammad Imran
Additional contact information
Sohail Abbas: College of Geography and Environmental Science, Key Research Institute of Yellow River Civilization and Sustainable Development and Collaborative Innovation Center on Yellow River Civilization of Henan Province, Henan University, Kaifeng 475004, China
Ghulam Dastgeer: Department of Physics and Astronomy, Sejong University, Seoul 05006, Republic of Korea
Samia Nasreen: Department of Economics, Lahore College for Women University, Lahore 44444, Pakistan
Shazia Kousar: Department of Economics, Lahore College for Women University, Lahore 44444, Pakistan
Urooj Riaz: Department of Economics, Lahore College for Women University, Lahore 44444, Pakistan
Saira Arsh: Department of Economics, Lahore College for Women University, Lahore 44444, Pakistan
Muhammad Imran: Research Center for Advanced Materials Science (RCAMS), King Khalid University, P.O. Box 9004, Abha 61413, Saudi Arabia

Sustainability, 2024, vol. 16, issue 15, 1-19

Abstract: The aim of this study is to analyze the impact of financial inclusion on green economic growth in developing countries. For this purpose, 12 developing countries were selected based on the availability of data: Armenia, Egypt, Ethiopia, India, Indonesia, Iran, Jamaica, Kenya, Pakistan, Sri Lanka, Thailand, and Tunisia. Annual data for the period from 2004 to 2023 were used for this study. The focus of this study is on the achievement of Sustainable Development Goal 13 (SDG 13), which requires immediate intervention to address the challenges of climate change and its consequences. This study used principal component analysis (PCA) to construct the financial inclusion index. In this study, we conducted a unit root analysis using the second-generation unit root test. For long-run estimates, we used the Fully Modified Least Squares (FMOLS) model. According to the findings of the study, green innovation (β = 0.052 *), foreign direct investment (β = 0.438 *), and trade openness (β = 0.016 **) have positive and significant impacts on green economic growth (GEG). The extent of the positive effect of foreign direct investment (FDI) is greater, compared to green innovation and trade openness (TR). The results also indicate that financial inclusion (β = −0.241) and population (β = −0.291) have significantly detrimental impacts on GEG. However, the population impacts GEG to a greater extent, compared to financial inclusion. Similarly, results indicate that the negative impact of financial inclusion on GEG is greater than the positive impact of green innovation on GEG. On the basis of the findings of this study, policymakers are advised to promote green innovation, foreign direct investment, and trade openness to promote green economic growth. Moreover, this study suggests that green finance or financial inclusion constrained by environmental quality should be promoted to safeguard environmental quality.

Keywords: green growth; financial inclusion; FMOLS; SDGs; developing countries (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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