Income growth and green financing in renewable energy: Mitigating environmental degradation in emerging Asian countries

The rapid economic growth of emerging Asian countries has led to increased greenhouse gas emissions, water and air pollution, and deforestation. This study explores the environmental kuznets curve hypothesis in 10 emerging East and South Asian countries, examining the impact of green finance, financial development, and their interaction on carbon emissions. We utilized cross-sectionally augmented autoregressive distributed lag models and conducted robustness tests using augmented mean group and common correlated mean group estimators. Our findings reveal that initially, as income rises, carbon emissions increase, but beyond a certain threshold, emissions decline, in line with the Environmental Kuznets Curve hypothesis. Moreover, green finance and financial development both significantly reduce carbon emissions, and their combined effect is even more pronounced, suggesting that growing green finance sector supported by sound financial system, can significantly enhance environmental sustainability. Our panel causality analysis further indicates that the expansion of the green finance sector facilitates the transition to a sustainable economy through enhanced financial development.