Does Financial Inclusion Foster Green Economic Growth? Evidence from High-Income Economies
Abstract
This study examines whether financial inclusion promotes green economic growth in 20 high-income countries over 2005–2021. Green economic growth is proxied by adjusted green GDP, while financial inclusion is measured through two principal component analysis indices capturing use/accessibility and availability. The empirical approach combines a dynamic fixed-effects panel model, written in the autoregressive distributed lag parameterisation and estimated with Driscoll–Kraay standard errors, and kernel regularised least squares, used as an exploratory diagnostic of functional form. The findings show that the use and accessibility dimension of financial inclusion is negatively associated with green economic growth, suggesting that broader access to credit and banking services may stimulate energy-intensive consumption and production when not aligned with green objectives. By contrast, the availability dimension is not significant in the panel model and is positive and significant only under the kernel estimator. Globalisation is consistently and positively associated with green growth, whereas green innovation and renewable energy consumption display negative associations, consistent with rebound mechanisms and incomplete technological maturity. Overall, the results highlight that financial inclusion alone is insufficient for sustainability and should be coupled with targeted green finance, energy-efficiency policies, and effective environmental regulation.