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Dynamic impact of financial inclusion and industrialization on environmental sustainability

Author

Listed:
  • Awais Ur Rehman
  • Arsalan Haneef Malik
  • Abu Hassan bin Md Isa
  • Mohamad bin Jais

Abstract

Purpose - The study aims to investigate the impact of financial inclusion (FI) on environmental quality and the mediating role of industrialization (IZ). In addition, these relationships among the counties with different levels of income and carbon emissions were also analyzed. Design/methodology/approach - This paper used the International Monetary Fund database for indicators of FI. The environmental indicators were obtained from the World Bank database for a panel of worldwide countries from 2004 to 2019. Separate indices of environmental sustainability (ES) and environmental degradation (ED) were created by using principal component analysis . The generalized method of moments regression was applied to examine the relationship between variables. Findings - The study found full mediation of IZ between FI and ES, whereas partial mediation between FI and environmental degradation. The results were found robust against alternative measures of carbon emissions. Furthermore, the study also bifurcated the sample according to the level of income and carbon emission. It was found that FI plays a positive role in the betterment of environmental quality for high-income countries, while a negative role in upper-middle-income, lower-middle-income and low-income countries. Besides, FI has a negative role in the ES of the countries having higher or lower carbon emission levels. Originality/value - Empirically this study contributes by creating two different novel measures of ES and environmental degradation, in contrast to other studies that solely relied on carbon emission. Contrary to previous studies, this study suggests that FI is not solely responsible for environmental damages, and IZ is the key channel by which FI shifts its impact on ES. Moreover, for environmental degradation, there are some other channels involved that need to be investigated further. This study has also noted that the relationship between FI and ES is context-dependent. Theoretically, this paper contributes to the literature by using ecological modernization theory in the nexus of FI, IZ and environmental quality.

Suggested Citation

  • Awais Ur Rehman & Arsalan Haneef Malik & Abu Hassan bin Md Isa & Mohamad bin Jais, 2022. "Dynamic impact of financial inclusion and industrialization on environmental sustainability," Social Responsibility Journal, Emerald Group Publishing Limited, vol. 19(5), pages 906-929, June.
    • Handle: RePEc:eme:srjpps:srj-07-2021-0275
    DOI: 10.1108/SRJ-07-2021-0275
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    Citations

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    Cited by:

    1. Barut, Abdulkadir & Kaya, Emine & Bekun, Festus Victor & Cengiz, Sevgi, 2023. "Environmental sustainability amidst financial inclusion in five fragile economies: Evidence from lens of environmental Kuznets curve," Energy, Elsevier, vol. 269(C).

    More about this item

    Keywords

    Ecological modernization theory; Environmental sustainability; Financial inclusion; Industrialization; C38; F64; O14; O50;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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