Does financial inclusion spur carbon emissions in India: an ARDL approach

Abstract

PurposeThe present study tries to examine the relationship between financial inclusion and environmental quality as proxied by carbon emissions in India covering the period from 2008 to 2018.Design/methodology/approachA financial inclusion index has been composed using principal component analysis (PCA) based on three dimensions: access, penetration and usage. After testing for stationarity of the data, the authors adopted the autoregressive distributive lag model (ARDL) methodology.FindingsThe study found that financial inclusion and growth lead to increased carbon emissions in India and the government must resort to greener policies, whereas empirical results support that globalization reduced the pollutants emissions in both the long term and short period in India.Practical implicationsBased on the results, several policy prescriptions are rendered for policymakers: (1) need to move toward greener energy policies and (2) enhance the awareness of green financing instruments such as green bonds in India. Therefore, policymakers should be more proactive in accepting green and sustainable financial alternatives.Originality/valueThe present study contributes to the scant literature on the financial inclusion–emission nexus in India. This study considers three inclusion parameters that are not present in previous studies.