Money talks, green walks: Does financial inclusion promote green sustainability in Africa?

Abstract

This study explores the dynamic relationship between financial inclusion and green sustainability across 38 African countries. We construct an environmental pollution index and a financial inclusion index covering the period 2000–2021 to account for the several dimensions within both indicators and employ them in the System GMM approach. We also test for intra-regional heterogeneity in Africa. Our empirical results show that financial inclusion, while economically beneficial, poses a significant risk of environmental degradation and has a distinctive inverted U-shaped relationship. A direct link between increases in financial inclusion and pollution alters at a turning point, beyond which further financial inclusion increases enhance green sustainability. The same pattern is observed for aggregate output. The results hold even when we control for a score of macro-level determinants. Our analysis highlights intra-regional heterogeneity, revealing differences in impact across income levels and regional groups within Sub-Saharan Africa. These results remain robust for alternative proxies of green sustainability. We offer valuable insights for policymakers to promote sustainability through inclusive financial practices and policies in Sub-Saharan Africa.