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Money Talks, Green Walks: Does Financial Inclusion Promote Green Sustainability in Africa?

Author

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  • Samuel Fiifi Eshun

    (Institute of Economic Studies, Charles University, Prague, Czech Republic)

  • Evzen Kocenda

    (Institute of Economic Studies, Charles University, Prague, Czech Republic; CESifo, Munich, Germany; IOS, Regensburg, Germany; Department of Banking and Insurance, Faculty of Finance and Accounting; Institute of Information Theory and Automation of the CAS, Prague; the Euro Area Business Cycle Network)

Abstract

This study explores the dynamic relationship between financial inclusion and green sustainability across 38 African countries. We constructed an environmental pollution index and a financial inclusion index covering the period 2000-2021 to account for the several dimensions within both indicators and employed them in the System GMM approach. We also tested for intra-regional heterogeneity in Africa. Our empirical results show that financial inclusion, while economically beneficial, poses a significant risk of environmental degradation and has a distinctive inverted U-shaped relationship. A direct link between increases in financial inclusion and pollution alters at a turning point, beyond which further increments in financial inclusion enhance green sustainability. The same pattern is observed for aggregate output. The results hold even when we control for a score of macro-level determinants. Our findings indicate the existence of an intra-regional heterogeneity in that Southern and Western African states exhibit a more significant negative impact on environmental pollution than Eastern Africa. These results remain robust for alternative proxies of green sustainability. We offer valuable insights for policymakers to promote sustainability through inclusive financial practices and policies in Sub-Saharan Africa.

Suggested Citation

  • Samuel Fiifi Eshun & Evzen Kocenda, 2024. "Money Talks, Green Walks: Does Financial Inclusion Promote Green Sustainability in Africa?," Working Papers IES 2024/23, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2024.
    • Handle: RePEc:fau:wpaper:wp2024_23
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    Keywords

    Environmental Pollution Index; Financial Inclusion Index; Green Sustainability; Sub-Saharan Africa (SSA); System Generalized Methods of Moments (GMM);
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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