FinTech’s Double-Edged Sword: Economic Growth and CO2 Emissions – A Panel Data Analysis

Abstract

This study explores the influence of financial technology (FinTech) on Economic Growth (EG) and environmental sustainability (measured through focusing on CO2 emissions). By analyzing panel data from 81 countries between 2001 and 2022, the research uses Structural Equation Modeling (SEM) to evaluate direct, indirect, and total effects. The findings, derived from Stata 18, show a significant positive direct effect of FinTech on EG (coefficient = 0.8439, p < 0.001), affirming the hypothesis that FinTech stimulates economic development. Moreover, EG substantially boosts CO2 emissions (coefficient = 0.3628, p < 0.001), highlighting a trade-off between economic progress and environmental sustainability. FinTech also directly increases CO2 emissions (coefficient = 0.3511, p < 0.001), implying that advancements in financial technology can worsen environmental issues. The mediation analysis indicates that some of FinTech's impact on CO2 emissions is mediated through EG (indirect effect = 0.3061, p < 0.001), emphasizing FinTech's dual role in promoting EG and environmental degradation. The total effect of FinTech on CO2 emissions (0.6573, p < 0.001) underscores the substantial environmental costs associated with financial technological advancements. Theoretically, this research enriches the Technology Acceptance Model (TAM) and supports the Environmental Kuznets Curve (EKC) hypothesis. It extends TAM by showing how the acceptance and integration of FinTech innovations affect macroeconomic and environmental outcomes. Additionally, it provides empirical support for the EKC hypothesis, which suggests that EG initially causes environmental degradation until a certain income level is reached, after which environmental conditions improve. These results highlight the challenge of balancing technological and economic advancements with environmental sustainability, stressing the need for policies that incorporate sustainable practices within the FinTech sector. This research adds to existing literature by offering detailed insights into the environmental impacts of FinTech and provides valuable guidance for policymakers aiming to foster sustainable economic development.