Research methods in economics to evaluate the role of energy efficiency and financial inclusion in achieving China’s carbon neutrality target

Abstract

In the recent literature, energy efficiency got the attention of scholars due to its discouraging impact on CO2 emissions, which is considered the most prevalent greenhouse gas that human activities produce. Data reports that China is the leading CO2 emitting country across the globe, and still the environmental degradation is in progress. Thus, the current paper empirically investigates the impact of energy efficiency (ENEF), financial inclusion (FD), GDP, export diversification (EXD), and human capital index (HCI) on the environmental degradation of China over the period from 1988 to 2018. This study uses various time-series tests to empirically investigate the determinant of CO2 emissions, including normality tests, unit root tests, and combined cointegration tests. Besides, the long-run coefficients are analyzed via the fully modified ordinary least square (FMOLS), dynamic OLS (DOLS), and the Canonical Cointegrating Regression (CCR) estimators. The empirical findings reveal that all the variables are cointegrated in the long run. However, the coefficient estimate shows that ENEF and HCI significantly promote environmental sustainability. While GDP, FD, and EXD significantly promote environmental degradation by enhancing the CO2 level in the atmosphere. This study recommends practical policy implications based on the empirical findings: energy-efficient products and energy sources could be promoted.