Does Financial Inclusion Promote Environmental Sustainability: Analyzing the Role of Technological Innovation and Economic Globalization

In the last two decades, financial inclusion has dramatically augmented the accessibility and affordability of financial services and significantly contributes towards economic development; however, its environmental implications cannot be ignored. In this context, this study investigates the impact of financial inclusion on CO2 emissions in Asia–Pacific Economic Cooperation (APEC) countries. Furthermore, we analyze the moderating role of technological innovation and economic globalization in the relationship between financial inclusion and CO2 emissions. Drawing on the data from 2004 to 2018, advanced econometric techniques robust to cross-sectional dependence and slope heterogeneity are employed. The augmented mean group (AMG) outcome reveals that financial inclusion and renewable energy consumption significantly promote environmental sustainability by reducing CO2 emissions. On the other hand, economic growth and economic globalization damage environmental quality by increasing CO2 emissions. The findings further unfold that financial inclusion fosters environmental sustainability through the channel of technological innovation. Additionally, the interaction term effect of financial inclusion with economic globalization poses an unfavorable impact on environmental quality. Besides, Dumitrescu and Hurlin (D-H) non-causality test revealed the unidirectional casualty between financial inclusion, renewable energy, and CO2 emissions, while feedback hypothesis among economic globalization, technological innovation, economic growth, and CO2 emissions. In line with these crucial findings, this study recommends that the APEC countries should promote financial inclusion along with technological innovations and, at the same time, integrate economic globalization with the climate change policies to achieve sustainable development goals.