Green Finance, Socioeconomic Drivers, and Carbon Emissions in Asia: Evidence from the STIRPAT Model

Abstract

This study has examined the determinants of CO₂ emissions in selected Asian countries through the use of STIRPAT. An extended version of the STIRPAT framework is used to include green finance development, income inequality, education, population growth, trade openness, and urbanisation as significant factors in per capita CO₂ emissions. Panel data is used for selected high-, upper-middle-, lower-middle- and low-income Asian countries, and the GMM estimation technique is employed for analysis. From the empirical findings, it can be seen that green finance development has significant negative effects on CO₂ emissions in all income groups, and the effect is stronger in lower-income countries. However, factors that lead to increasing carbon emissions vary among income groups. Trade openness and urbanisation are the major factors contributing to rising carbon emissions among high- and upper-middle-income countries. On the other hand, income inequality, population growth and increased consumption due to education have more significant positive impacts on CO₂ emissions in lower-middle- and low-income countries. The results also imply that green finance is not enough in decreasing carbon emissions. It should be complemented by certain policy actions and reforms to meet the needs of each country.

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