How financial development and digital trade affect ecological sustainability: The role of renewable energy using an advanced panel in G-7 Countries

Ecological sustainability has now become a primary concern of nations. The gradual increase in greenhouse gasses (GHGs) emanation has created an alarming situation in recent decades. The rapid increase in economic growth extends the ecological footprint of advanced economies. Although various studies have explored numerous factors contributing to achieving ecological sustainability, very few are known regarding financial development and digital trade impact. Hence the study considers financial development and digital trade as crucial determinants of the ecological footprint of G-7 countries. For this purpose, the study employed the CUP -FM continuously updated fully modified and CUP-BC continuously updated bias-corrected estimators on the panel data of G-7 countries from 2000 to 2020. The coefficients of the long-run parameters show a negative association between digital trade, renewable energy consumption, and ecological footprint, whereas financial development has a significantly positive relationship with the ecological footprint. It implies that financial stability encourages investment in carbon-intensive economic activities; therefore, financial development causes environmental degradation in G-7 countries. In contrast, digital trade enhances technological innovations' penetration, which helps ensure ecological sustainability. Likewise, the increased renewable energy consumption minimizes fossil fuel consumption, thus reducing the ecological footprint of G-7 countries. Lastly, this study endorsed Environmental Kuznets Curve and offered policy directions to ensure environmental sustainability in G-7 economies.

Automated summary

This study examines the impact of financial development and digital trade on the ecological footprint of G-7 countries. The findings suggest a negative association between digital trade and renewable energy consumption with the ecological footprint, while financial development shows a significantly positive relationship. Therefore, digital trade and increased renewable energy consumption play a positive role in ensuring ecological sustainability, while financial development may lead to environmental degradation.