Greening the flow: Harnessing foreign remittances for sustainable development and environmental governance: Evidence from 2SLS testing approach

Abstract

AbstractForeign remittances have significantly impacted recipient countries' economic growth and financial development over the past few decades. However, eco‐friendly climate change mitigation techniques must be implemented immediately due to the environmental implications of foreign remittances. Recipient nations' industrial and agricultural sectors are bolstered by remittances, ultimately contributing to carbon dioxide emissions. This paper examines the effects of remittances on economic growth by incorporating CO2 emissions, financial development, industry, and agriculture‐added value. This study examines panel data spanning 32 years (1990–2021) for eight countries: China, the Philippines, Egypt, India, Mexico, Nigeria, Bangladesh, and Pakistan. The relationship among selected variables and their impact on CO2 emission is examined using the two‐stage least squares (2SLS) and Granger causality approach. The empirical results show that increased financial development and economic growth decrease environmental quality through toxic CO2 emissions. The remittances and agricultural sector help to mitigate CO2 emission by their negative contribution toward environmentally destructive activities in top remittances‐based countries. Except for agriculture, CO2 emission is bidirectionally related to all variables. Incorporating industrialization (as an instrumental variable) to improve the financial system leads to an upward trend in CO2 emissions reduction. As a result, the study makes important suggestions to economists and policymakers on reducing CO2 emissions in Asian countries.