Financial Inclusion, Household Consumption and Carbon Emission: Evidence from Sub-Saharan Africa
Abstract
Financial inclusion is essential in promoting inclusive economic growth by effectively addressing barriers that hinder individuals' access to financial markets. This research examines how financial inclusion influences carbon emissions in Sub-Saharan Africa through an extensive analysis of panels categorised by income and geographical criteria from 2004 to 2022. The study begins by developing a financial inclusion index that assesses the availability and usage of financial services using the Principal Component Analysis method. The outcomes from the two-way fixed effect model show that the expansion of financial inclusion significantly affects a nation's carbon emissions. These findings remain robust even after employing serial robustness tests and implementing an instrumental variable approach to address potential endogeneity concerns. Further scrutiny of the underlying mechanism reveals that financial inclusion stimulates consumption by enhancing individuals' and households' access to funds. The empirical findings indicate that the area lacks appropriate policy synergies between promoting financial inclusion, household consumption and reducing carbon emissions. Hence, it is imperative to include financial inclusion in climate change adaptation plans at national and regional levels, mainly to tackle the adverse consequences of increased carbon emissions linked to enhanced financial inclusion.