Dynamic linkages of financial inclusion, modernization, and environmental sustainability in South Asia: a panel data analysis

This study explores the dynamic linkages of financial inclusion, modernization, and environmental sustainability in South Asia during the period 1998-2019. Two distinct composite indexes for financial inclusion and modernization are developed by using principal component analysis (PCA) based on normalized indicators. To examine the dynamic linkages, we adopted panel regression models that are not only robust but also heteroskedasticity consistent. We find that financial inclusion, modernization, per capita GDP, and FDI appear to lead to higher CO2 emissions in the South Asian region. Meanwhile, increased economic integration and trade openness appear to have negative dynamics for carbon emissions. These empirical findings are unbiased and robust to different reasonable modifications to panel data model specifications. This study comes up with the conclusion that presently there is no policy coherence and coordination between growing financial inclusion, modernization, and carbon mitigation strategies in South Asia. Thus, the prospect of financial inclusion and modernization should be cohesive into comprehensive climate change mitigation strategies at regional, national, and global levels, specifically to mitigate the adverse dynamics of higher carbon emissions associated with modern development.

Automated summary

This study reveals that in South Asia, financial inclusion, modernization, per capita GDP, and FDI seem to lead to higher CO2 emissions, while increased economic integration and trade openness appear to have negative dynamics for carbon emissions.