Sustainable Financial Development: Does It Matter for Greenhouse Gas Emissions?

Abstract

As the detrimental effect of greenhouse gas emissions becomes increasingly significant, it has been a worldwide concern. As a result, the purpose of this paper is to examine the effect of sustainable financial development on greenhouse gas emissions via heterogeneous technological progress, using 162 countries as a sample. Empirical assessment is conducted using panel data from 2000 to 2019 and the mediation effect model as well as the country and year fixed-effect model. The findings are shown as follows: (1) Greenhouse gas emissions are increased as a result of sustainable financial development. (2) Environmental technology progress and technology choice progress have a dilution effect. Together, they have the ability to lower the amount of greenhouse gas emissions caused by sustainable financial development. However, these two dilution effects do not completely cut down on the amount of greenhouse gas emissions that come from global sustainable financial development, even though they do help. (3) The direct and indirect effects of sustainable financial development on greenhouse gas emissions are heterogeneous among countries with different income levels. Through technological progress, sustainable financial development in middle-income countries significantly cuts greenhouse gas emissions. Sustainable financial development, on the other hand, increases greenhouse gas emissions in both high- and low-income countries, although there are distinctions between them. (4) Environmental technology progress in high-income countries has a dilution effect. Meanwhile, technological choice and progress in low-income countries have a mediating effect on greenhouse gas emissions. To conclude, the evidence provided in this paper may provide some potential solutions to the issue of greenhouse gas emissions, and also enrich the existing literature.