Can Financial Institutional Deepening and Renewable Energy Consumption Lower CO₂ Emissions in G-10 Countries: Fresh...

To tackle the challenges associated with global warming and climate change, several countries set their targets to lower carbon emissions in accordance with COP21 (Paris Conference). Even though studies highlighted the different aspects that contribute to environmental degradation, there still exists the scarcity of adequate research that emphasizes the environmental implications of financial institutional deepening, renewable energy consumption (REC), and technology innovations. Therefore, this study investigated the significance of financial institutional deepening, REC, gross domestic product (GDP), imports, exports, and technology innovations to achieve sustainability in G-10 countries, namely The Netherlands, Germany, France, Switzerland, United Kingdom, Sweden, Japan, Belgium, Canada, and Italy from 1990 to 2020. The results obtained from cross-sectionally augmented autoregressive distributed lag (CS-ARDL) and the dynamic common correlated effects mean group (DCCEMG) models reveal that financial institutional deepening and imports positively impact CO₂ emissions (CO₂e) both in the long and short run. A 1% increase in financial institutional deepening and import will increase CO₂e by 0.5403% and 0.2942% in the short run and 0.2980% and 0.1479% in the long run levels, respectively. Contrary to this, REC, GDP, exports, and technology innovations improve environmental quality in these countries. The Dumitrescu & Hurlin causality test shows bidirectional causality between imports and CO₂e, GDP and CO₂e, exports and CO₂e, and financial institutional deepening and CO₂e, compared to unidirectional causality from technology innovations to CO₂e and from REC to CO₂e. Apart from this, the outcomes suggest that policymakers in G-10 countries have to consider their financial markets and firms to revise their current environmental policies.