Financial inclusion and environmental pollution in sub-Saharan Africa: moderating effects of economic growth and renewable energy

Abstract

AbstractA thriving literature exists about the role of financial inclusion in socio-economic development. Nevertheless, the environmental effects of financial inclusion are largely unknown in the literature, especially in sub-Saharan African countries. Therefore, this study explores the association between financial inclusion and CO2 emissions utilizing data from 23 sub-Saharan Africa for the period 2004–2019. Based on different estimation methods such as dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS), canonical correlation regression (CCR), and an instrumental variable generalized-method of moment (IV-GMM), the results show that financial inclusion is responsible for a substantial increase in CO2 emissions. In addition, financial inclusion moderates economic growth, resulting in higher CO2 emissions. Alternatively, financial inclusion moderates renewable energy use to lower CO2 emissions. The outcomes also verify the presence of the Environmental Kuznets Curve hypothesis (EKC). This study proposes uniting financial inclusion and environmental policies as a strategy for reducing CO2 emissions in sub-Saharan Africa.