Digital financial inclusion, environmental degradation, and human capital nexus: evidence from South Asian countries

This study investigates the complex interrelations between Digital Financial Inclusion, Human Capital, and Greenhouse Gas Emissions in South Asian countries from 2005 to 2023. We applied second-generation unit root analysis and panel co-integration test of Westerlund, designed especially for cross-sectional dependence and slope heterogeneity, by subjecting them to rigorous testing of these data irregularities. The Westerlund test results confirm significant long-term co-integration, but findings suggest a mixed character of stationarity. The empirical results indicate that a 1% incline in human capital leads to a 1.81% decrease in greenhouse gas emissions. In contrast, a one-unit increase in digital financial inclusion is associated with a 0.33-unit increase in greenhouse gas emissions. This study addresses a neglected area of existing research through regional analysis and utilises approaches to handle cross-sectional dependence and slope heterogeneity. Policymakers are encouraged to integrate findings from this study into climate action strategies, emphasising the importance of promoting digital financial inclusion to support human capital development while addressing environmental impacts.