Exploring the mediating role of financial inclusion in the relationship between economic policy uncertainty and CO2 emissions: A global perspective

This study examines the connection between economic policy uncertainty (EPU), CO2 emissions, and financial inclusion in developed and developing countries. Using the data from 2004 to 2021, advanced statistical techniques are employed, including Sobel test, to explore the mediating effect of financial inclusion on the relationship between economic policy uncertainty (EPU) and CO2 emissions. There is a dearth of research examining these three variables together in a single study. Similarly, using financial inclusion as a mediator in the relation of EPU and CO2 emissions is a novel concept. This article employs a multi-indicator approach to measure key variables like CO2 emissions and financial inclusion. The results indicate that uncertainties in economic policies contribute in practices that lead to higher CO2 emissions in overall panel data of 44 countries. In addition, when considering the relationship between EPU and FI, the results indicate a significant and negative relationship between EPU and FI. If there is uncertainty in economic policies, it may lead toward challenges and hurdles in financial inclusion. When the mediating affect was checked, it was found financial inclusion acts as a significant mediator in the relationship between EPU and CO2 emissions, depicting that financial inclusion fosters the environmental quality and mitigates the potential harmful effects of environmental aspects of economic policy uncertainty. Therefore, policies that promote financial inclusion should be given top priority by governments, particularly in emerging nations. Financial literacy and bank service accessibility should be promoted. These measures would lessen the impact of staggering economic policies on CO2 emissions. It is necessary for policymakers to include environmental factors, specifically those relating to carbon emissions, into economic strategies. This requires encouraging industries to adopt eco-friendly practices and coordinating economic strategies with sustainability objectives.