Is Carbon Neutrality Attainable with Financial Sector Expansion in Various Economies? An Intrinsic Analysis of Economic Activity on CO 2 Emissions

Sandra Chukwudumebi Obiora, Muhammad Abid, Olusola Bamisile () and Juliana Hj Zaini
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Sandra Chukwudumebi Obiora: School of Management and Economics, University of Electronic Science and Technology of China, No. 2006, Xiyuan Ave., West Hi-Tech Zone, Chengdu 611731, China
Muhammad Abid: Department of Energy Systems Engineering, Faculty of Integrated Technologies, Universiti Brunei Darussalam, Jalan Tungku Link, Bandar Seri Begawan BE1410, Brunei
Olusola Bamisile: College of Nuclear Technology and Automation Engineering, Chengdu University of Technology, Chengdu 610059, China
Juliana Hj Zaini: Department of Energy Systems Engineering, Faculty of Integrated Technologies, Universiti Brunei Darussalam, Jalan Tungku Link, Bandar Seri Begawan BE1410, Brunei

Sustainability, 2023, vol. 15, issue 9, 1-27

Abstract: The severe effects of climate change and its anticipated negative influence on the future of the globe has prompted more research into the attainment of carbon neutrality. While carbon neutrality is a paramount issue, human socio-economic well-being which is mostly influenced by economic activities cannot be overlooked. This study investigates the effect of financial sector activities on CO 2 emission in five economic sectors and three economic bodies. The financial sector variables utilized are derived from the undertakings of institutions such as banks, stock exchanges, and insurance companies. Using a sample of 39 countries between 1989 and 2018, this paper provides a global perspective of the profound impact financial sector activities have in different economies on CO 2 emission reduction. The feasible generalized least squares (FGLS) regression model, as well as the random and fixed effects model with regards to Durbin–Wu–Hausman, are used to analyze the data. The generalized method of moments (GMM) is also adopted as the robustness method. Our findings show that for emerging economies, all major activities of the financial sector aggravated CO 2 emission levels in all major CO 2 emitting economic sectors. The developing and developed economies also show a similar trend. In the emerging economies, virtually all activities carried out by the financial sector have a significant negative impact on CO 2 emissions at the 1% or 5% significance level, thereby hampering CO 2 emission mitigation efforts. However, increased long-term bank lending to non-major economic sectors is found to alleviate CO 2 emissions in developing economies. This is also the situation with increased numbers of import insurance. Meanwhile, CO 2 emissions are found to decrease with increased net portfolio investments and numbers of insurance on exports. These findings not only imply that financial sector activities play a fundamental role in CO 2 emission mitigation but also serve as a reminder for financial policymakers that the decisions they make have an inevitable impact on the attainment of carbon neutrality in their economies.

Keywords: economic activities; financial sector; carbon neutrality; EKC hypothesis; developing economies; emerging economies; developed economies (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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