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Financial inclusion-environmental degradation nexus in OIC countries: new evidence from environmental Kuznets curve using DCCE approach

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Abstract

The disastrous consequences of climate change for human life and environmental sustainability have drawn worldwide attention. Increased global warming is attributed to anthropogenic greenhouse gas (GHG) emissions, biodiversity loss, and deforestation due to industrial output and huge consumption of fossil fuels. Financial inclusion can be acted as an adaptation or a mitigation measure for environmental degradation. This study analyzed the impact of financial inclusion on environmental degradation in OIC countries for the period 2004–2018. A novel approach, “Dynamic Common Correlated Effects (DCCE)” is used to tackle the problem of heterogeneity and cross-sectional dependence (CSD). Various GHG emissions along with deforestation and ecological footprint are used as indicators of environmental degradation. Long-run estimation confirms that financial inclusion is positively and significantly linked with CO2 emission, CH4 emission, and deforestation while negatively correlated with ecological footprint and N2O emission in overall and higher-income OIC economies. An inverted U-shaped environmental Kuznets curve (EKC) is validated when ecological footprint, CO2, and CH4 are used in all panels of OIC countries. An inverted U-shaped EKC is also observed for deforestation in lower-income and overall OIC countries. In the case of N2O emission, however, a U-shaped EKC appears in lower-income and overall OIC countries. It is suggested that the governments of OIC countries should continue to have easy access to financial services and maintain sustainable use of forests and biocapacity management to address environmental challenges.

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Data Availability

The datasets used in this study are available from the corresponding author on reasonable request.

Notes

  1. This association is similar to the inverted-U shaped association between GDP and income inequality defines by Kuznets (1955).

  2. Metric tons of carbon dioxide equivalent

  3. Data related to financial inclusion prior to 2004 is not available for OIC countries.

  4. i.e., Low-income, lower-middle-income, upper-middle-income, and high-income countries.

  5. PMG (pooled mean group) is developed by Pesaran et al. (1999).

  6. MG (mean group) is developed by Pesaran and Smith (1995).

  7. CCE (common correlated effects) is presented by Pesaran (2006).

  8. Jackknife command is utilized in STATA for obtaining robust values of standard errors and variance, especially in case of small data size.

  9. The STATA command PCA is used for obtaining the financial inclusion index (FIN).

  10. For instance, see Xue et al. (2021)

  11. Equation 13 of the model specification defines the formula for calculating the EKC turning point.

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Acknowledgements

This paper is a part of the first author’s thesis for his PhD in Finance from Putra Business School, UPM, Malaysia.

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Authors and Affiliations

  1. Putra Business School, UPM, Seri Kembangan, Malaysia

    Imran Sharif Chaudhry, Zulkornain Yusop & Muzafar Shah Habibullah

  2. School of Economics, Bahauddin Zakariya University, Multan, Pakistan

    Imran Sharif Chaudhry

  3. School of Business and Economics, Universiti Putra, Seri Kembangan, Malaysia

    Zulkornain Yusop

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  1. Imran Sharif Chaudhry
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Contributions

Imran Sharif Chaudhry: conceptualization, data analysis, and writing-original draft. Zulkornain Yusop: supervision, proofreading, and editing. Muzafar Shah Habibullah: writing—methodology and supervision.

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Correspondence to Imran Sharif Chaudhry.

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Appendix

Appendix

Table 9 List of OIC countries with various environmental indicators
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Table 10 Classification of selected OIC countries
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Chaudhry, I.S., Yusop, Z. & Habibullah, M.S. Financial inclusion-environmental degradation nexus in OIC countries: new evidence from environmental Kuznets curve using DCCE approach. Environ Sci Pollut Res 29, 5360–5377 (2022). https://doi.org/10.1007/s11356-021-15941-9

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