Financial inclusion and environmental pollution in sub-Saharan Africa: moderating effects of economic growth and renewable energy

A thriving literature exists about the role of financial inclusion in socio-economic development. Nevertheless, the environmental effects of financial inclusion are largely unknown in the literature, especially in sub-Saharan African countries. Therefore, this study explores the association between financial inclusion and CO2 emissions utilizing data from 23 sub-Saharan Africa for the period 2004–2019. Based on different estimation methods such as dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS), canonical correlation regression (CCR), and an instrumental variable generalized-method of moment (IV-GMM), the results show that financial inclusion is responsible for a substantial increase in CO2 emissions. In addition, financial inclusion moderates economic growth, resulting in higher CO2 emissions. Alternatively, financial inclusion moderates renewable energy use to lower CO2 emissions. The outcomes also verify the presence of the Environmental Kuznets Curve hypothesis (EKC). This study proposes uniting financial inclusion and environmental policies as a strategy for reducing CO2 emissions in sub-Saharan Africa.


Introduction
Climate change is today's most contentious environmental matter, which has gained the attention of policymakers (Amin et al. 2022;Said and Acheampong 2024).The increasing emphasis on greenhouse gases in the atmosphere has serious consequences for both economic and human development (Tamazian et al. 2009;Shahbaz et al. 2022;Hussain et al. 2023).In spite of attempts to diminish CO 2 emissions, international emissions have been rising.According to the World Bank (2023), worldwide CO 2 emissions reached to more than 34 million kilotons (kt) in 2019 compared to around 29 million (kt) in 2009.This enormous increase in CO 2 emissions contradicts the Paris consent on climate change to alleviate CO 2 emissions.
It is undeniable that economic growth improves living standards, but it is also harmful to the environment (Acheampong 2019;Mehmood 2022;Naseem et al. 2024;Işık et al. 2024).Following the work of Grossman and Krueger (1995), numerous studies have assessed the link between economic growth and environmental pollution, notably recognized as the Environmental Kuznets curve (EKC).The EKC hypothesis recommends that economic growth and the environment have an inverted U-shape relationship.Thus, during the early phases of growth, environmental pollution increases, but after a certain threshold of growth, it decreases.Empirical findings on the EKC hypothesis have been inconsistent.Some authors such as Farhani and Ozturk (2015), Acheampong (2019), Tenaw and Beyene (2021), and Naseem et al. (2024) state that CO 2 emissions are continuously rising with economic growth; thus, the EKC hypothesis is not supportable in this case.In contrast, other works have maintained the presence of the EKC postulate (see, e.g., Stern 2004;Tamazian et al. 2009;Omri et al. 2015;Sapkota and Bastola 2017;Aydoğan and Vardar 2020;Jebabli et al. 2023;Raza and Tang 2024).
Theoretically, the impact of financial inclusion on the environment remains debatable.Some authors are with the standpoint that financial inclusion enhances the quality of the environment through diminishing CO 2 emissions.Jensen (1996), for example, argues that the financial sector plays a considerable role in lowering energy emissions through encouraging technological advancements in the energy supply to minimize environmental pollution.In addition, as Tamazian et al. (2009) point out, financial services are the source of greater levels of research and development, which ultimately benefit the environment.Other scholars, however, argue that financial development can have detrimental effects on environmental quality, which contradicts these desirable impacts of financial services on the environmental quality.Sadorsky (2011), as an instance, argues financial development leads to more energy consumption and environmental degradation related to energy-intensive consumer items like refrigerators, cars, and big houses.Furthermore, financial inclusion could boost CO 2 emissions through stimulating industrial manufacturing and utilizing energy-intensive consumable items (Le et al. 2020).
Despite renewable energy's favorable environmental effects, its role in reducing CO 2 emissions remains controversial.Some scholars support the opinion that renewable energy upgrades the environment.For example, Huang et al. (2021) contend that renewable energy use has a beneficial influence on the environment by creating a minimal carbon footprint in comparison with fossil fuels consumption.They also contend that coal use results in 3.6 pounds of CO 2 E/ kWh in comparison with 0.04 pounds produced through wind.Moreover, renewable energy leads to the increasing demand for energy use driven by economic growth (Rasoulinezhad et al. 2020).Contrarily, other group of scholars claim that renewable energy worsens the environment by rising CO 2 emissions.Nguyen and Kakinaka (2019) find that renewable energy exerts a positive influence on CO 2 emissions in developing nations.The authors stress that in developing countries, a lack of modern and affordable forms of energy decreases economic productivity and incomegenerating opportunities, so they cannot afford to promote cleaner energy.Furthermore, renewable energy projects may need highly sophisticated technology and relatively high costs, which can be quite burdensome for national budgets.Till date, few papers have assessed the effect of financial inclusion on CO 2 emissions and provided the contradictions in the literature; Acheampong (2019), Saidi andOmri (2020), andSaid andAcheampong (2024) contend that further empirical studies should be conducted to resolve these inconsistent findings.Thus, investigations of financial inclusion and the environment are still in the early phases, and additional studies are needed to adequately comprehend how financial inclusion affects the environment.In addition, little research has been conducted to assess how financial inclusion moderates economic growth and renewable energy to influence on CO 2 emissions.As a final point, scarcely is shown about the influence of financial inclusion on CO 2 emissions in sub-Saharan Africa.Based on literature disagreements, this paper explores the direct and indirect impacts of financial inclusion on CO 2 emissions in 23 sub-Saharan African nations between 2004 and 2019.
This study focuses on the sub-Saharan African region since the region is the lowest contributor to worldwide CO 2 emissions.However, sub-Saharan Africa has experienced a continuous growth in CO 2 emissions over the past two decades.For example, according to the World Bank (2023), CO 2 emissions increased from 608,000 (kt) in 2004 to 789,000 (kt) in 2014 and further to about 824,000 (kt) in 2019 (see Fig. 1).
The region has also experienced a significant improvement in financial inclusion.Despite improvements in the percentage of adults with bank accounts in sub-Saharan Africa between 2011 and 2021, only 55% of adults in this region had bank accounts in 2021.In this region, account ownership does not only lag behind high-income countries and the world average but also behind other developing nations (see Fig. 2).Therefore, it is crucial to understand how financial inclusion impacts CO 2 emissions in sub-Saharan Africa to develop climate change policies and for sustainable development in the region.
As of now, very few studies have simultaneously incorporated financial inclusion, economic growth, and renewable energy in their model.Therefore, this study evaluates CO 2 emissions (kt)-Sub-Saharan Africa whether financial inclusion, economic growth, and renewable energy simultaneously affect CO 2 emissions.In addition, it examines whether renewable energy and economic growth activities moderate the relationship between financial inclusion and environmental pollution, which has largely been neglected in the previous studies.Consequently, this paper addresses three issues that are lacking in the past research.
(1) How does financial inclusion affect the environment in the sub-Saharan African region?(2) Does economic growth moderate the connection between financial inclusion and CO 2 emissions?(3) Do renewable energy sources moderate the linkage between financial inclusion CO 2 emissions in the region?
This study extends and contributes to knowledge by the following ways.First, it examines the direct relationship between financial inclusion and CO 2 emissions for 23 countries in sub-Saharan Africa between 2004 and 2019.Second, it illustrates indirect effects of financial inclusion on CO 2 emissions.Hence, in contrast to previous studies, the present study extends the literature by looking at how financial inclusion moderates the impact of economic growth and renewable energy on CO 2 emissions.As a final point, to accomplish consistent and robust empirical findings, this study utilizes different techniques such as dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS), canonical correlation regression (CCR), and an instrumental variable generalized-method of moment (IV-GMM).
Here are the remaining sections of this study.The "Related prior studies and hypothesis development" section presents a review of the existing literature.A description of the research methodology and variables is given in the "Methodology and data" section.The "Estimation strategy" section presents the estimation strategy.The "Results and discussions" Section summarises the main findings, while the "Conclusions, policy implications, and future outlook" section concludes with policy implications.

Financial inclusion and CO 2 emissions
The principle of financial inclusion is to ensure that financial products and services are accessible to all individuals and businesses.The World Bank acknowledged that fulfilling this principle would contribute to the accomplishment of the 17 United Nations Sustainable Development Goals (SDGs) (World Bank 2018).There are currently few studies on the relationship between financial inclusion and the environment, with conflicting theoretical perspectives and empirical results about how financial inclusion influences the quality of the environment (Le et al. 2020;Shahbaz et al. 2022;Said and Acheampong 2024).According to theoretical standpoint, financial inclusion could both negatively and positively influence the environment.By improving financial inclusion, individuals would be more likely to be able to access financial products and to use energy-consuming appliances such as refrigerators, automobiles, and coolers (Said et al. 2023;Le et al. 2020;Frankel and Romer 2017), leading to a higher level of CO 2 emissions.In addition, through fostering inclusive financial systems, more economic activity occurs, which increases the demand for non-renewable energy sources and increases the amount of CO 2 emitted into the atmosphere (Tao et al. 2022;Said and Acheampong 2024;Said 2024).However, according to the credit-innovation theory, financial inclusion has the potential to reduce CO 2 emissions through green technology development.The development of green technologies is widely recognized as a key component of CO 2 emission reduction (Du et al. 2019;Said and Acheampong 2024).Yang et al. (2024) support this point of view by stating that financial inclusion will reduce CO 2 emissions by promoting green innovation, environmental procedures, and the use of clean energy.As with theoretical ambiguity, empirical studies have also found inconsistent results regarding the impact of financial inclusion on CO 2 emissions.As presented in Table 1, while some empirical studies suggest that financial inclusion increases CO 2 emissions, other empirical studies suggest the opposite.For instance, Le et al. (2020) point out financial inclusion leads to higher CO 2 emissions in the case of Asia.In addition, Mehmood (2022) indicates that financial inclusion exacerbates CO 2 emissions in South Asia.Additionally, Ahmad et al. (2022) assess the influence of financial inclusion on environmental pollution in the ASEAN region from 2000 through 2019.The results indicate that financial inclusion brings out environmental degradation in the ASEAN region.In particular, they indicate that a 1% increase in financial inclusion results in a 0.42% increase in environmental degradation.Using a sample of Belt and Road Initiative (BRI) countries, Cai and Wei (2023) report that financial inclusion is associated with greater CO 2 emissions.They find that 1% rise in financial inclusion increases CO 2 emissions by 0.158%.The same conclusion is also reached by Mukalayi and Inglesi-Lotz (2023) who point out that financial inclusion contributes to the decline in environmental quality in Africa between 1990 and 2019.However, Du et al. (2022) contend that financial inclusion negatively impacts CO 2 emissions, indicating that boosting financial inclusion is beneficial for the environment.Hussain et al. (2023), based on the pooled mean group estimation technique (PMG), explores the association between financial inclusion and CO 2 emissions in a large sample of Asian economies.The results indicate that financial inclusion negatively impacts CO 2 emissions over the long-term.Zhou et al. (2023) examine the effect of financial inclusion on carbon emissions using 30 Chinese provinces for the period 2011-2020.The empirical findings exhibit that financial inclusion results in a significant decrease in CO 2 emissions, suggesting that financial access contributes to the environmental quality.Employing the AMG estimator and the Driscoll-Kraay panel regression approach, Prempeh et al. (2023) reveal that the development of the banking sector improves environmental quality in western African countries between 1990 and 2019.In a more recent study, Prempeh (2024) indicates that a higher level of financial development and the use of renewable energy are linked with lower levels of CO 2 emissions in 10 West African countries.In addition, Said and Acheampong (2024) indicate that financial inclusion contributes significantly to decarbonization in the MENA region.According to the proposed relationship in the literature, we hold the following hypothesis: H1.Financial inclusion increases CO 2 emissions in sub-Saharan Africa.

Moderating role of renewable energy in financial inclusion-CO 2 emissions nexus
It is indispensable to conduct research about renewable energy and the environment, as it provides policymakers with additional insight into achieving Sustainable  (Fahim et al. 2023b).Renewable energy sources have been expanded to speed up the transmission to an environmentally friendly economy.
Considering the importance of the renewable energy in environmental sustainability, a number of studies have explored the relationship between renewable energy and CO 2 emissions.Overall, the empirical research on the renewable energy-CO 2 emissions linkage can be categorised into several segments.The first one asserts that renewable energy has a detrimental influence on CO 2 emissions.For instance, Aydoğan and Vardar (2020) investigate the impact of renewable energy on CO 2 emissions for a large sample of emerging countries.The results point out that renewable energy decreases CO 2 emissions.Wang et al. (2021) assess the relationship between renewable energy and CO 2 emissions in ten developing nations.The empirical findings show that renewable energy consumption leads to a reduction in CO 2 emissions.In addition, Mirziyoyeva and Salahodjaev (2022) reveal that renewable energy improves the environmental quality in top carbon-intense countries in the world.The results suggest that a 1% increase in renewable energy consumption leads to a reduction of 0.98% in CO 2 emissions.Recently, Said and Acheampong (2024) examine the connection between renewable energy and environmental pollution in 11 MENA countries.The outcomes reveal that renewable energy reduces the carbon emissions in the region, thereby improving environmental quality.
The second segment of empirical studies argues that renewable energy consumption worsens environmental quality.Bulut (2017) analyzes the influence of renewable energy on Turkey's environment.It has been shown that renewable energy use enhances CO 2 emissions.By other words, renewable energy negatively impacts Turkish environmental quality.The same finding can also be found in Nguyen and Kakinaka (2019), who argue that renewable energy worsens environmental quality over time.
The last segment of studies reports that renewable energy exerts negligible impacts on CO 2 emissions.Twumasi (2017), for instance, evaluates the influence of renewable energy on CO 2 emissions in United States of America.Empirical findings indicate that renewable energy use wields no influence on CO 2 emissions.Similarly, Boontome et al. (2017) contend that renewable energy has an inconsiderable influence on environmental quality in Thailand for the period 1971-2013.Nathaniel and Iheonu (2019) examine the association between renewable energy and environmental pollution in sub-Saharan African countries.The empirical findings indicate that renewable energy consumption has an unimportant influence on CO 2 emissions.Similarly, Saidi and Omri (2020) point out that there is no link between CO 2 emissions and renewable energy consumption in 15 major renewable energy nations from 1990 through 2014.Lastly, Pata et al. (2023) indicate that renewable energy does exert any impact on the environment in six ASEAN countries from 1995 to 2018.It is apparent from this review that the wide variety of empirical models used in these studies has resulted in inconclusive results.
Despite the direct role of renewable energy consumption in CO 2 emissions, it can indirectly influence CO 2 emissions by influencing the impact of financial inclusion on CO 2 emissions.For instance, the use of renewable energy plays an important role in promoting financial inclusion (Işık et al. 2024).An environment-friendly energy policy attracts the attention of financial investors.In addition, as the financial sector improves, companies become more attractive to investing in energy, which in turn increases energy demand and creates more trust in the financial system (Işık et al. 2024).Many empirical studies have supported that renewable energy consumption matters in enhancing financial inclusion (Islam et al. 2013;Furuoka 2015;Anton and Nucu 2020).These discussions and evidence show that renewable energy can condition the effect of financial inclusion to influence CO 2 emissions.It is, however, rare to find empirical evidence that demonstrate how renewable energy moderates the relationship between financial inclusion and CO 2 emissions; hence, this insures additional investigation.Therefore, we formulate the second hypothesis below: H2: Renewable energy consumption moderates the relationship between financial inclusion and CO 2 emissions.

Moderating role of economic growth in financial inclusion-CO 2 emissions nexus
Over the past few decades, the empirical link between economic growth and CO 2 emissions has been heavily explored.This relationship is closely linked with testing the validity of the environmental Kuznets curve (EKC) hypothesis.Numerous present studies on this relationship have contended that the level of environmental pollution and economic growth follows the inverted U-shaped relationship.This inverted U-shaped linkage is identified as EKC in the literature.Since the 1990s, that relationship has been investigated after Grossman and Krueger (1995) presented empirical evidence suggesting that economic growth contributes to a gradually deteriorating environment in its early stages.However, after a certain threshold of economic growth, it contributes to an enhancement in the environmental conditions.Subsequent to this seminal study, numerous studies have investigated the link between growth and environmental pollution after Grossman and Krueger's (1995) theory and demonstrate contradictory conclusions.For instance, Sapkota and Bastola (2017) test the validity EKC hypothesis between economic growth and environmental pollution in Latin American region over the period 1980-2010.Results indicate the presence of the EKC hypothesis in the region.Omri et al. (2015) also validates the existence of EKC hypothesis in MENA countries from 1990 to 2011.By contrast, numerous studies have different perspective regarding the link between economic growth and environmental pollution.Pablo-Romero and De Jesús (2016) test the EKC hypothesis between energy consumption and CO 2 emissions in Latin America.The results indicate that EKC is not supported for the region.Acheampong (2019) indicates that EKC is not valid using data from 46 sub-Saharan African countries from 2000 to 2015.Similar results are also found in empirical studies such as Stern and Common (2001), Stern (2004), and Acheampong et al. (2020).
Although the evidence that economic growth is associated with CO 2 emissions, economic growth indirectly affects CO 2 emissions through its impact on financial inclusion.According to Sarma and Pais (2011), economic growth contributes to higher financial development, which in turn has an impact on financial inclusion.The authors indicate that financial inclusion is considerably affected by income, inequality, literacy, urbanization, and physical infrastructure in a country.In addition, Wang and Guan (2017) and Van et al. (2021) contend that an individual's income and education play a crucial role in determining the level of financial inclusion in a country.Synthesizing the above evidence, we formulate the third hypothesis: H3: Economic growth moderates the link between financial inclusion and CO 2 emissions.

Gaps in the literature
Few studies have explored the influence of financial inclusion, economic growth, renewable energy, and CO 2 emissions across different regions.The link between financial inclusion, economic growth, renewable energy use, and CO 2 emissions varies from study to another.A difference in geographical location, economic development level, approach, selected variables, or econometrics techniques can also affect the results of research.To the author's knowledge, none of these studies has explored this relationship in the case of sub-Saharan Africa.In the last two decades, Sub-Saharan countries have experienced improvements in terms of economic development, financial systems, and renewable energy consumption; therefore, examining this relationship would be worthwhile, as it would offer more insightful implications for these countries.Further, a number of recent studies investigated the role of finance in the renewable energy-CO 2 emissions (see, e.g., Wang et al. 2022a); however, the roles of renewable energy and economic growth in moderating the influence of financial inclusion on environmental pollution is unknown.Aiming to address this issue, this paper explores the moderating roles of renewable energy and economic growth in the linkage between financial inclusion and environmental pollution in 23 nations in sub-Saharan Africa.

Empirical model
This paper explores the moderating role of economic growth and renewable energy on financial inclusion-CO 2 emissions nexus in a sample of 23 sub-Saharan countries from 2004 to 2019.1 To achieve this objective, this study considers three models.In the main effect model Eq. ( 1), CO 2 emission is a function of financial inclusion (FI), economic growth (GDPPC), squared of economic growth (GDPPC) 2 , renewable energy consumption (RE), and industrialization (INDUS).As per existing literature (Shahbaz et al. 2022;Said and Acheampong, 2023), this study investigates the impact of financial inclusion on CO 2 emissions using the empirical estimation shown in Eq. (1).
To probe the moderating roles of financial inclusion and economic growth and financial inclusion and renewable energy on CO 2 emissions, Eqs. ( 2) and (3) extend Eq. ( 1) to consider the interaction terms of financial inclusion and economic growth (lnFI × lnGDPPC) and of financial inclusion and renewable energy (lnFI × lnRE).Equations ( 2) and (3) are written as follows: (1) where i = 1……..23 and t = 2004……0.2019; 1 ……. 5 are the coefficients to be estimated; 1 and 2 capture the indirect effect of financial inclusion; 1 represents the fixed country effect, t is time fixed effects, and ε is the white noise.Table 2 displays descriptive statistics between the variables.CO 2 emissions per capita increase on average by 0.19% with a standard deviation of 0.65%.In addition, economic growth in sub-Saharan Africa averages 7.94%, while renewable energy usage averages 4.10%.Regarding financial inclusion indicators, ATMs in sub-Saharan Africa have an average number of 2.83%, while bank branches have an average number of 2.15%.
Table 3 shows that there is a strong positive correlation between financial inclusion variables (lnATM, lnBB, and lnOLCB) and CO 2 per capita (lnCO 2 PC).In addition, it has been reported a strong negative connection between renewable energy (lnRE) and lnCO 2 PC.Finally, the results show that the economic growth (lnGDPPC) is found to be positively and highly related with lnCO 2 PC.

Financial inclusion index (lnFI)
To calculate a composite financial inclusion index (FI), four measures are considered: (1) number of ATMs per 10,000 adults, (2) number of commercial bank branches per 10,000 adults, (3) outstanding deposits from commercial banks (% of GDP), and (4) outstanding loans from commercial banks (% of GDP).Due to the different units and scales of these measures, it is necessary to transform them into normalized variables before aggregating them into a composite index (FI).Normalization using standardized Z-score approach is conducted as follows: where X i denotes the raw score; X is the group average, and α is the standard deviation.Then, conduct a principal component analysis (PCA) on the normalized indicators.

CO 2 emissions per capita (lnCO 2 PC)
The variable CO 2 emission is expressed in metric tons per capita.In the literature, CO 2 emissions per capita have been widely used to assess environmental pollution (Boontome et al. 2017;Acheampong et al. 2020;Shahbaz et al. 2022;Said and Acheampong 2024).CO 2 emissions are the primary cause of global warming.

Renewable energy (lnRE)
Switching to renewable energy is an important factor in improving the environment.It has been found that renewable energy consumption and CO 2 emissions are negatively correlated regardless of the sample and methodology used (see, e.g., Charfeddine and Kahia 2019;Chen et al. 2019;Sharif et al. 2019;Yao et al. 2019), other evidence suggests that renewable energy has a positive or even neutral effect on CO 2 emissions (Apergis et al. 2010;Menyah and Wolde-Rufael 2010;Saidi and Omri 2020).

Economic growth (lnGDPPC)
Economic growth is represented by real GDP per capita.By including per capita GDP and its square into the analysis, one can establish the EKC hypothesis, which assumes that CO 2 emissions and per capita GDP are inversely related (Inverted U-shaped).Otherwise, it is U-shaped if GDP per capita is negative and significant, and its square term is positive and significant.The validity of the EKC hypothesis is contradictory (see, e.g., Stern 2004;Omri et al. 2015).

Industry (lnINDUS)
Industry affects CO 2 emissions both positively and negatively.The impact of industrialization on CO 2 emissions has been shown to be positive because it wields higher environmental pollution (Liu and Bae 2018).Alternatively, the development of the tertiary industry and the rationalization of the industrial structure lead to a reduction in environmental pollution (Du et al. 2019;Wang et al. 2022b).

Cross-section dependence test
Previous research shows that panel data can have heterogeneity and cross-section dependence (CD) issues.The effects of CD must be investigated as they can sometimes produce erroneous results (Danish et al. 2018).Hence, this study computes cross-sectional dependence using Pesaran's CD test (Pesaran 2004).De Hoyos and Sarafidis (2006) suggested that disregarded common shocks can affect the cross-sectional dependence of cross-country panels.In other words, if cross-sectional dependence is present in data but not considered in the analysis, it will cause inconsistent standard errors (Driscoll and Kraay 1998).The results reported in Table 4 indicate that null hypothesis is not rejected in all tests, which confirms the residuals are cross-sectionally independent under fixed effect and random effect specifications.

Panel unit root test
Testing the stationarity of the variables is a crucial process in any study.The validation of cross-sectional independence led me to employ the unit root test recommended by Im et al. (2003).Table 5 shows that all variables have a unit root.As soon as the first difference between all variables is taken, stationarity is implemented, indicating that all variables are integrated of order 1.In order to estimate variables empirically, it is necessary to establish their stationary state.

Panel co-integration test
Once all the series are stationary and integrated at order 1, it needs to be checked whether they cointegrate.This study uses the Pedroni panel co-integration test (Pedroni 2004). 2edroni test takes into account the heterogeneity through parameters that may differ between individuals.Under the null hypothesis, the test is based on the absence of co-integration.In contrast, under the alternative hypothesis, there is a co-integration relationship between the variables for each panel (Dinda and Coondoo 2006).Based on the results in Table 6, the test statistically rejects the null hypothesis of no co-integration and supports the alternative hypothesis regarding co-integration between variables in Eqs. ( 1), (2), and (3).

Estimation of long-run coefficients
This study utilizes different estimation techniques to investigate the linkage between financial inclusion and environmental pollution.DOLS is used since it is a parametric estimator that addresses autocorrelation (Liguo et al. 2022).However, FMOLS approach takes into consideration the heterogeneity in the cointegration link.Additionally, it rectifies the endogeneity of the explanatory indicators and the serial link inherent in the dynamic panels (Pedroni 2001).CCR employs a stationary conversion approach to reduce the relation between stochastic regressor errors and cointegration equations (Christiansen 2015).To check the robustness of the outcomes in presence of possible endogeneity between financial inclusion and environmental quality, this paper also utilizes the instrumental variable generalized method of moment (IV-GMM).The purpose of this study is to examine the effect of financial inclusion on CO 2 emissions, so it is essential to have an instrument for financial inclusion index.This study employs the lags of the financial inclusion index as the instruments for financial inclusion index. 3To test the validity of the instruments, Kleibergen-Paap rk LM is used to examine whether the endogenous regressor is well identified by the instruments.Under the null hypothesis, the model is under-identified.However, the rejection of the null indicates that the model is identified.This paper also uses Cragg-Donald Wald F statistic test to examine whether the excluded instruments are correlated with the endogenous regressors.Under the null hypothesis, the model is weak.In contrast, the rejection of the null indicates the model is well-specified.Finally, Hansen J test of over-identifying restrictions is used.The null hypothesis of this test indicates that the instruments are valid instruments, i.e., uncorrelated with the error term.However, the rejection of this test indicates that the instruments are not valid, i.e., correlated with the error term.Lastly, the Hansen J test does not reject the over-identifying restrictions, affirming the validity of the instruments.Furthermore, the Kleibergen-Paap rk test and Cragg-Donald Wald F test confirm that these specifications are properly identified and do not suffer from under-and weak-identification problems.

Results and discussions
Table 8 reports the panel results of the influence of financial inclusion on CO 2 emissions in the presence of the interaction term of financial inclusion and economic growth.The results are at large similar to those presented in Table 7. Renewable energy decreases CO 2 emissions per capita, industry increases CO 2 emissions, and EKC hypothesis is valid between economic growth and environmental pollution.On the contrary, financial inclusion exerts a significant negative effect on CO 2 emissions.As shown in Table 8, the interaction term enters with a positive sign, significant at the 5% level, suggesting a complementary relationship between finance and economic growth to worsen environmental quality.Financial inclusion could promote strong economic growth and encourage industrial activities, which leads to increasing CO 2 emissions.A 1% increase in FI* GDPPC increased CO 2 emissions with a range of 0.133-0.194%.
Table 9 provides similar results to Table 7 in relation to renewable energy, economic growth, industry, and financial inclusion impact on CO 2 emissions.It is observed from Table 9 that the interaction term of financial inclusion and renewable energy wields a negative influence on CO 2 emissions.This result suggests that financial inclusion complements renewable energy to reduce the CO 2 emissions.Hence, financial inclusion assures efficacy in renewable energy, thereby lessening CO 2 emissions.A 1% increase in FI* RE significantly reduced CO 2 emissions within a range of 0.282-0.336%.
Finally, the Hansen J test does not reject the over-identifying restrictions affirms the validity of the instruments.In addition, The Kleibergen-Paap rk test and Cragg-Donald Wald F test suggest that this regression is well specified.

Conclusions, policy implications, and future outlook
The present study may provide the first empirical analysis of the association between financial inclusion, economic growth, renewable energy, and CO 2 emissions for 23 in the region.While this paper establishes that financial inclusion directly deteriorates environmental quality, it indirectly improves the quality of the environment by promoting renewable energy use.These findings have three main implications for policies for attaining SDG 7 in sub-Saharan Africa.This study calls on policymakers to enact measures that warrant the stability and effectiveness of the financial system.Finding the adverse environmental influence of financial inclusion definitely does not mean lowering financial inclusion.Instead, policymakers should strive to improve the environmental impact of financial inclusion.Consistent with the recommendation of Le et al. (2020) and Said et al. (2023), for financial inclusion to drive SDG 7, policy makers should support access to financial services initiatives consistent with environmental policies in region-wide countries.Secondly, financial inclusion indirectly increases CO 2 emissions by spurring economic growth in sub-Saharan nations.It is important for policy makers to encourage investment in sustainable economic sectors.Finally, financial inclusion indirectly reduces CO 2 emissions by promoting renewable energy in the region; policymakers should promote renewable energy use through policy support, public awareness, and investments in research and development.Moreover, tax incentives should be offered to encourage the use of renewable energy in these nations.Thus, this will spur the production of clean and modern energy (Mentel et al. 2022).
Despite contributing to the relevant research area, the current work has some limitations.Firstly, this study uses CO 2 emissions as the only proxy for the environmental pollution.Nevertheless, additional proxies of environmental pollution, such as sulfur dioxide (SO2) and nitrogen dioxide (NO2), can be used to ensure robustness.Furthermore, a narrow definition of financial inclusion was constructed in this study.Various aspects should be included to create a financial inclusion index, such as credit, savings, payments, and insurance.
While this study makes a valuable contribution, some further research is still needed.There are numerous ways to expand this research.Future research could look at the relationship between economic growth, financial inclusion, and CO 2 emissions in other developing regions.Second, future studies can explore the impact of financial inclusion, economic growth, and renewable energy on ecological footprint, which generally describes environmental degradation.Lastly, a comparative study that concentrates on the degree of a nation's economic development may help to clarify the impact of financial accessibility and economic expansion on CO 2 emissions.
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Fig. 2
Fig. 2 Percentage of the adult population with an account at a financial institution.Source: Global Findex database 2022

Table 1
Literature review-financial inclusion-CO 2 emissions relationship FI, financial inclusion; ARDL, autoregressive distributed lag model approach; GMM, generalized method of moments approach; GLS, generalized least squares approach; FMOLS, fully modified ordinary least square approach; DOLS, dynamic ordinary least square approach; CCR , canonical cointegrating regressions approach; AMG, augmented mean group approach

Table 4
Results of the cross-sectional dependence tests

Table 7
Financial inclusion and CO 2 emissionsUnder-identification is the Kleibergen-Paap rk test; weak identification test is Cragg-Donald Wald F statistic; over-identification test is the Hansen J statistic.**P < 0.05, ***P < 0.01