NAME: AREEBA BUTT

REGISTRATION NUMBER: W19BACT011

DEPARTMENT: ACCOUNTING AND FINANCE

COURSE TITLE: SEMINAR IN FINANCE

SUBMITTED TO: MISS FIZZA

DATE: 4 MAY, 2023

POST- MID ASSIGNMENT

 THE IMPACT OF FINANCIAL INCLUSION ON CARBON EMISSIONS:
MODERATED MEDIATION ROL OF FINANCIAL OPENNESS AND
ECONOMIC GROWTH

Introduction
Since the 1950s, the climate has been warming, with surface air temperatures rising faster than
the global average. The effects of climate change on ecosystems, agriculture, human health, and
water supplies are profound. Whereas, natural resource utilization, globalization and
industrialization etc. are the number of factors for determining economic growth. (Woodruff,
2019). In addition to this, the development of the financial sector is seen as an essential part of
the process of overall development (Le, Chuc, & Taghizadeh Hesary, 2019). Financial
development is an important and challenging aspect of the growth curve (Yang et al., 2020).
Financial inclusion is a crucial element of financial development that advances financial sector
and institutional development (Le et al., 2019).

The accessibility and equality of opportunities to obtain financial services are referred to as
financial inclusion. It describes a method by which people and companies can obtain suitable,
reasonable, and timely financial products and services. These include financial services such as
loans, insurance and equity. Theoretically, we might say that financial inclusion may have both
positive and negative effects on environmental health. The benefits of financial inclusion arise
from the concept that investing in clean and sustainable energy gets easier when financial
services are readily available to all persons and individuals. Due to rising affordability,
availability and acceptance of healthy environmental practices, the production process in
factories gets less environmentally hazardous (IPA, 2017). On the other hand, the greater
availability to financial services, encourages industrial activity and production, which could lead
to an increase in CO2 emissions, one of the main causes of global warming (Khan and Ozturk,
2021). Increased growth could lead to energy deprivation, which may also contribute to carbon
emissions (Zhao et al., 2021). Fig. 1 shows that Asia is the largest cause of CO2 emissions in the
last ten years in the world, over a third of world emissions are produced by this it. Since Asian
nations are at high risk, it would be devastating if conservation and adaptability actions were not
launched quickly and enthusiastically. Meanwhile South and Central America is the least emitter
of CO2 emissions since 2005.
 Conceptual Framework

Financial Openness Economic Growth

Financial Inclusion CO2

 Hypothesis:

H1: Financial inclusion has a significant effect on Co2 emissions.

H2: Economic Growth mediates the relationship between Financial Inclusion and Co2
emissions.
H3: Financial Openness positively moderates the relationship between Financial Inclusion
and Economic Growth.

 Research Questions:
1. What is the relationship between Financial Inclusion and Co2 emissions?
2. Is the Economic Growth mediates the relationship between Financial Inclusion and Co2
emissions?
3. Is Financial Openness positively moderating the relationship between Financial Inclusion
and Economic Growth?

 Research Methodology:
In order to stop climate change in Canada, this study investigates how financial inclusion can
help cut greenhouse gas emissions. The dependent variable is CO2 emissions. Climate change
will gradually have disastrous, permanent impacts on life on Earth if CO2 emissions are not
rapidly reduced. The independent variable is Financial Inclusion. The data of all independent
variable is taken from World Bank Database and of CO2 emissions (dependent variable) from
Our world in data. The study is conducted in Canada for the investigation period of 1933-2023.

The analysis investigated the effects of financial inclusion on CO2 emissions (both directly and
indirectly through economic growth), financial inclusion's effects on CO2 emissions (as
influenced by financial openness), and economic growth's effects on CO2.A moderated
mediation analysis was run to test the theoretical model using (Model 7 by Hayes, 2018).
  Variable and its Measurements:

Variables Variable Measurement Criteria References Source

Name

Independent Automated teller machines (ATMs) are (Le, Le, & World Bank
(ATMs) per
100,000 electronic Commercial Bank Branches Taghizadeh-
Variable
adults(proxy tools that give bank customers access to Hesary, 2020)
of financial financial activities in public settings.
inclusion )
Dependent CO2 Carbon dioxide emission levels (Le, Le, & Our World
emissions (measured in terms of metric tons) Taghizadeh-
Variable in Data
Hesary, 2020)
Mediating GDP per One of its metrics is gross domestic product, (Ali, Law, & World Bank
capita (current which is the annual market value of all the Ibrahim Zannah,
Variable
US$)(Proxy of products and services produced in a region. 2016)
Economic
Growth)
Moderating Financial It is the sum of inflows and outflows of (Yakubu,Nadom Chinn-Ito
Openness direct investment, equity investment, &
Variable index
debt securities, financial derivatives, Alhassan,2021)
and other investment.
  Results and Discussion:

Figure 1 represents the description of the model. Hayes model 7 has been used here for analysis
and the total observation is 101. Atm is the independent variable represented as financial
inclusion. Open (moderator) is abbreviation of Financial Openness and Eco (mediator) is
abbreviated as Economic growth. Here model summary for the variable Economic Growth is
shown.

 Financial Inclusion has an insignificant impact on Economic Growth.

(b = -0.4596, t = (-1.5206), p =0.1316). As p-value is higher than 0.05, it is not statistically
significant and indicates strong evidence for the null hypothesis. The F statistics value and
coefficients value is negative which means that increase in 1 in independent variable leads to
o.5 unit’s decrease in dependent variable.
 Financial Openness has a significant impact on Economic Growth.
(b = 1.8239, t = 2.6165, p = 0.0103).
Financial Openness is having an insignificant impact, because the p -value is less than 0.05,
which is statistically significant.

 Int_1 (ATM * Open) has an insignificant impact on Economic Growth.

 (b = -.2217, t = -0.2800, p = 0.7801).
The interaction between financial inclusion and Financial Openness is not significant as the
p-value is higher than 0.05.

Figure 3 shows the model summary for the variable CO2 emissions.

 Financial Inclusion has a significant impact on Co2 emissions.

(b = 2062.7768, t = (3. 2996), p =0.0014). The impact is significant because p -value is lower
than 0.05 and is statistically significant. And the F statistics value is equal to 3.2996 and the
coefficients value states that the 1 unit increase in independent variable leads to o.5 unit’s
increase in dependent variable. The independent variable does have a positive significant impact
on the dependent variable, which means hypothesis 1 is accepted.

 Economic Growth has a negative and insignificant impact on Co2 emissions.

(b = -141.2848, t = -0.6965, p = 0.4878). The relationship is insignificant the p -value is
higher than 0.05, which is statistically insignificant. It states that the model is not the best fit.
Although this is a good start, we still don't know much about the indirect effect or how the
moderator affects it. For that, we need to examine Direct and Indirect Effects of independent and
dependent. The conditional indirect effects shows that the indirect effect is high at low Financial
Openness, increased at average Financial Openness, and further increased at high Financial
Openness. However, the conditional indirect effects are not significant at the two levels. The
indirect effect in the presence of the moderator (At Mean Level) is 64.9400, and per the
bootstrap, that is not within the confidence interval at a p < .05. The results show than when the
moderator is low, the indirect effect is 53.4375, which is significant. Conversely, when the
moderator is high, the indirect effect is 76.4424, which is still insignificant as well.

The last test, need to assess is if the construct of Financial Openness is significantly moderating
the indirect effect. Which is being measured by the index of moderated mediation value.
Therefore, it is clear from the findings, that the financial openness is moderating the relationship
between Financial Inclusion and Co2, accepting the H3.
  Conclusion:
Global warming has captured the interest of academics, environmentalists, and governments
from all across the world in recent decades. The main cause of rising global temperatures is
greenhouse gas emissions, mainly CO2.The countries are expected to have provisions for
completing the climate welfare policies, ensuring complementarity between financial sector
development, economic growth, and environmental welfare. Governments must ensure the
policies on financial inclusion are efficient.

The research is conducted to bring into highlight financial inclusion's contributions to lowering
greenhouse gas emissions and preventing climate change in Canada. This study typically
examines how the availability of affordable financial services and products can help in
promoting use of environment protective technologies.

The results shows that financial inclusion has a positive impact on Co2 emissions (b =
2062.7768, t = (3. 2996), p =0.0014), supporting hypothesis 1. The conclusion on the
detrimental effects of financial inclusion on the environment in no way suggests that we should
reduce financial inclusion. Policymakers should promote financial inclusion and access to
financing instead, but in a more precise manner. In order for the G7 nations to be able to control
their individual CO2 emission levels, it is important for them to increase their levels of financial
inclusion.The risk associated with green finance should be reduced by the Green credit guarantee
scheme (Taghizadeh-Hesary and Yoshino, 2019). Europe has been the most vocal promoter for
global action on climate change (Zhang et al., 2019). To assist poor and underprivileged
segments of society cope with rising CO2 emissions, policymakers of these nations must
increase access to and inclusivity of climate finance. To enable individuals, micro, small, and
medium-sized businesses to implement local, small-scale mitigation and adaptation measures
aimed at lowering CO2 emissions, proper access to financial products and services is necessary.

The Financial Openness moderating the impact of Financial Inclusion on Co2 emissions is
significant and favorable, so hypothesis H3 is accepted. Overall, it is evident that that Financial
Openness is a substantial moderator. Whereas the hypothesis 2 is rejected as economic growth
has a negative and insignificant impact on Co2 emissions so it is not a good mediator.
From a methodological perspective, implementation of a moderated mediation model is a
novelty (at least relatively) compared with prior studies in the extant literature of financial
Inclusion. Future work can be conducted on other econometric methodologies and by using other
Hayes process models by including financial inclusion and other economic and social factors for
developed and developing countries.

 References:
Ali, H. S., Law, S. H., & Zannah, T. I. (2016). Dynamic impact of urbanization, economic
growth, energy consumption, and trade openness on CO 2 emissions in Nigeria. Environmental
Science and Pollution Research, 23(12), 12435-12443.

Le, T. H., Le, H. C., & Taghizadeh-Hesary, F. (2020). Does financial inclusion impact CO2
emissions? Evidence from Asia. Finance Research Letters, 34, 101451.

Yakubu, I. N., & Bunyaminu, A. (2021). Financial Inclusion and Economic Growth in West
Africa: The Moderating Effect of Financial Openness.

https://diarium.usal.es/jigartua/files/2012/07/Igartua-Hayes-TSJP-2021-
Mediation- Moderation-Conditional-Process-Analysis.pdf