Natural resources-financial innovation-carbon neutrality nexus: The role of policy robustness

Abstract

This study sought to investigate the impact of a natural resources, financial innovation, and policy robustness on carbon neutrality of a nation. Cross-country data from 6 major Asian economies: China, Malaysia, India, Indonesia, Pakistan, and Japan, from 2010 to 2020, were drawn for the analysis. This study employed the Westerlund panel cointegration approach to examine the long term relationship among the variables. Three models were developed and analyzed keeping CO2 emissions, natural resources, and financial innovation as dependent variables. Our findings of model-1 revealed that abundant natural resources and increase financial innovation are linked to lower carbon emissions. Policy robustness plays a significant role in reducing carbon emissions, highlighting the importance of strong environmental policies for sustainable development. However, economic growth is associated with higher carbon emissions, suggesting the need to manage growth sustainably. As economies expand, the consumption of natural resources also increases, indicating the necessity for strategies to decouple economic growth from resource use. In the model-2, GDP positively influences the exploitation of natural resources, emphasizing the need for sustainable practices. In the model-3, financial innovation is positively related to carbon emissions, indicating the potential for innovative financial instruments in emissions mitigation. Conversely, a negative relationship between natural resources and financial innovation suggest the importance of sustainable financial practices. This study stresses the complexity of factors influencing environmental sustainability and calls for comprehensive research. It underscores the significance of combining economic development with sustainable resource use, innovative financial practices, and robust policy frameworks to foster environmental sustainability in the Asian context.