Digital finance and sustainable development: Evidence from developing nations

Abstract

Objectives: This paper investigates the role of digital finance in promoting environmental sustainability within a group of 52 developing economies from 2010 to 2019. Specifically, it examines whether digital finance effectively contributes reducing CO2 emissions in these nations. Methods: This paper is a quantitative study which employs the IV-GMM (instrumental variable generalized methods of moment) approach that tackles any potential endogeneity. Furthermore, to ensure robustness of results, this paper also utilizes different measures of financial development. Results: Estimation results from this study reveal the presence of inverted U-shaped relationship between digital finance and CO2 emissions. This suggests that the beneficial effects of digital finance may take time to materialize. Additionally, this research also records the presence of the Environmental Kuznets Curve and a significant impact of renewable energy, trade openness, financial development, urbanization, and population on CO2 emissions. Conclusions: It can be concluded that it may take time for digital finance to become beneficial to the environment. Therefore, in addition to digital finance, countries should also adopt other measures simultaneously (use of renewable energy, combination between digital finance and financial development).