On the sustainable trade development: Do Financial inclusion and eco‐innovation matter? Evidence from method of moments quantile regression

Abstract

AbstractThe role of financial inclusion along with environment related technological innovation has been ignored by previous studies, especially, in terms of trade‐adjusted carbon emissions. Unlike previous studies, this study aims to test the role of financial inclusion and eco‐innovation on trade‐adjusted carbon emissions or consumption‐based carbon emissions for a group of seven economies over the period 2004–2019. Further, this study also tests the role of exports, imports and gross domestic product. We develop an index using principal component analysis to measure financial inclusion. The study utilizes the novel method of moment quantile regression to obtain the results. The results indicate that eco‐innovation reduces consumption‐based carbon emissions at 25th, 50th, 75th, and 90th quantiles, respectively. Moreover, financial inclusion and exports also reduce emissions at 25th, 50th, 75th, and 90th quantiles. In contrast, gross domestic product and imports cause trade‐adjusted emissions to increase. Moreover, a bidirectional link is established between all variables except for financial inclusion. Finally, this study provides relevant policy implications for trade, eco‐innovation, and financial inclusion in the group of seven economies for sustainable trade development. This paper further provide relevant environmental policy implications.