Nonlinear and Nonparametric Causal Relationship Between Financial Inclusion, Energy Efficiency, and Sustainable Environment in Developed Economies

A sustainable environment is as important as the economy’s growth, but, unfortunately, economic growth is environmentally unsustainable. Hence, there is a need to adopt efficient ways to help maintain a sustainable environment. The present research is designed to evaluate the association between financial inclusion, energy efficiency, and a sustainable environment in developed economies. The World Bank has regarded financial inclusion as a crucial element for attaining seven Sustainable Development Goals. So, there is a need to examine the causal association between financial inclusion, energy efficiency, and a sustainable environment. We employed the linear Granger causality test, Brock-Dechert-Scheinkman test for nonlinearity, and parameter stability testing. These techniques confirmed the presence of a nonlinear association and structural breaks between proposed variables. Later, the nonparametric causality in the quantiles technique has been employed for the analysis. The findings reveal that financial inclusions play a crucial role in maintaining a sustainable environment, but it is necessary to adopt energy efficiency policies to mitigate emissions. Furthermore, the recommendations for policymakers, government, and future scholars are discussed in the paper.