Assessing the Carbon Footprints of Income Growth, Green Finance, Institutional Quality and Renewable Energy Consumption in Emerging Asian Economies

Research Question: What is the applicability of the Environmental Kuznets Curve (EKC) hypothesis in emerging East and South Asian countries? Do institutional quality, trade openness, renewable energy consumption, green finance, financial development, and their interaction influence carbon emissions? Motivation: A new assessment of green finance, institutional quality, financial development, and other relevant variables in shaping the EKC hypothesis is required. Idea: In the context of emerging Asian countries, it requires consideration of cross-sectional dependence (CSD) due to the high economic integration among East and South Asian countries. They shared residual interdependency and cross-sectional exposure to common shocks, such as oil shocks, global financial shocks, and supply chain disruptions; hence, a more nuanced and multidisciplinary approach is needed. Data: A panel dataset that ranges from 2000 to 2019 is employed for ten developing East and South Asian economies, including China, India, Pakistan, Bangladesh, Sri Lanka, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines. Method/Tools: A series of panel analyses, including the CSD test, slope heterogeneity test, the 2nd generation panel unit root and cointegration tests, and CS-ARDL modelling, have been employed to address heterogeneity and cross-sectional dependence issues. Robustness tests using the Augmented Mean Group (AMG) and Common Correlated Effects Mean Group (CCEMG) estimators corroborate the findings, reinforcing the study's credibility and policy implications. Findings: Both the short- and long-run results consistently confirm the income-environmental degradation link, but the U-type EKC effect is absent. While green finance, trade openness, and financial development have insignificant impacts on carbon emissions, institutional quality and renewable energy consumption exhibit negative effects, highlighting their importance in curbing environmental degradation. More policy efforts are needed to promote investment in environmental financing, upgrade clean production technology, and enhance the decarbonization process. This study also identifies heterogeneity and cross-sectional dependence on environmental policies among these nations. Contributions: Green finance and R&D investments in green technologies are inadequate. Efforts to promote carbon neutrality by redirecting financing towards the sustainable and renewable energy sectors are needed. These findings underscore the need for greater collaborative efforts among emerging Asian nations, particularly China, to safeguard the environment and achieve sustainable development.