Can digital finance "green" the economy? : evidence from developing economies

In this paper, we investigate the role of digital finance in making developing economies greener. In other words, we examine whether digital finance really helps mitigate CO2 emissions in these nations. By applying the instrumental variable generalized method of moment (IV-GMM) approach to a panel dataset of 52 developing countries over the period 2010 to 2019, findings from this paper reveal the existence of an inverted U-shaped relationship between digital finance and CO2 emissions, implying that it may take time for digital finance to become beneficial. We also document the presence of the Environmental Kuznets Curve (EKC) as well as the significant effects of renewable energy, trade openness, financial development, urbanization and population on CO2 emissions. Finally, results show that although financial development in general and access to and depth of financial institutions in particular has an adverse effect on CO2 emissions, digital finance do moderate that impact to mitigate CO2 emissions. Several policy implications and recommendations are made.