Financial outreach, total factor productivity and environmental sustainability in middle-income countries

Abstract

We present evidence that technological advancement can attenuate the harmful effect of financial outreach on environmental sustainability among 58 Middle-Income countries for the period between 2004 and 2021 inclusively. We reached the conclusion after employing the two-step System General Method of Moment Estimation technique to deal with endogeneity due reverse causality. The findings indicate that factors like bank branches, ATMs, credit to the private sector, credit bureaus, and bank depositors have a negative influence on environmental sustainability. The study also highlights a favourable relationship between TFP and environmental sustainability. In the end, we found that TFP plays a crucial role in offsetting the adverse effects of financial outreach on the environmental sustainability. Based on the results, it is recommended that MICs assess their financial outreach activities to prevent compromising sustainability goals. Furthermore, promoting technological advancement is essential in achieving sustainability and mitigating the negative impacts of financial outreach on environmental sustainability.