Moderating Role of Global Financial Integration in the Climate Finance–Digitalisation–Renewable Energy Nexus: Empirical Evidence From Pacific Island Countries

ABSTRACT Pacific Island Countries contribute a negligible share of global greenhouse gas emissions yet face existential threats from climate change. This study examines how climate finance, digitalisation and renewable energy consumption affect carbon dioxide emissions per capita in 11 Pacific Island Countries over 2000–2024, and whether global financial integration moderates these effects. Using second‐generation panel unit root tests, bootstrap cointegration tests and a pooled mean group panel autoregressive distributed lag estimator, we find that climate finance, digitalisation and renewable energy consumption are each associated with lower emissions in the long run. The role of financial integration is specific to each driver. It strengthens the emission‐reducing effects of climate finance and renewable energy. The effect of climate finance is roughly nine times larger in countries one standard deviation above the mean level of integration. Its moderation of digitalisation is not robust across specifications, and at average levels of the other drivers, greater integration is itself associated with higher emissions. Emissions also rise with income, and deviations from the long‐run equilibrium have a half‐life of about 1.3 to 1.5 years. The results suggest that financial openness is neither a threat nor a guarantee for small island states. It reinforces climate finance and renewable energy where the capacity to absorb and deploy finance exists. Policy should therefore pair climate finance with project‐preparation and co‐financing capacity, ensure that new renewable capacity displaces diesel generation, power digital infrastructure with renewable energy, and screen foreign investment for its environmental performance.