Nexus Between Financial Development, Economic Growth, and Carbon Emissions (CO2 ) in Sub‐Saharan Countries

In the global pursuit of sustainable development, understanding the intricate interplay among financial development, economic growth, and environmental considerations is paramount. This study delves into the dynamics within 46 selected Sub‐Saharan countries from 2000 to 2020, investigating the nexus between financial development, economic growth, and CO2 emissions. Employing a rigorous methodological approach, we use carbon emissions (CO2) as the dependent variable, with financial development and economic growth as independent variables. Statistical tools include the Pesaran test for cross‐sectional dependency and Im‐Pesaran‐Shin, and Fisher‐type tests for unit root, ensuring methodological robustness. Various cointegration tests, such as the Kao, Pedroni, and Westerlund, were applied to validate long‐term relationships. To unveil the true dynamics of the long‐run impact of financial development on CO2 emissions, four methodologies were employed: Quantile Methods via Method of Moments (MMQR), Fully Modified OLS (FMOLS), Dynamic OLS (DOLS), and Canonical Correlation Regression (CCR). Our findings suggest that variables like AE, TO, NR, and GDP exert a positive and significant impact on CO2 emissions across all Quantiles. At the same time, foreign direct investment (FDI) exhibits a negative and significant influence on CO2 emissions. In light of these results, policymakers are urged to consider a nuanced approach to environmental policy formulation.