Financial Inclusion and Carbon‐Intensive Path Dependence: Evidence From Oil‐Exporting Economies

ABSTRACT

This paper examines whether financial inclusion mitigates environmental degradation or, conversely, reinforces carbon‐intensive development pathways in oil‐exporting economies, consistent with carbon lock‐in dynamics. Drawing on resource curse and structural specialization frameworks, we argue that financial deepening may amplify carbon‐intensive development in rent‐dependent settings rather than facilitate diversification. Using panel data for the 10 largest oil‐exporting economies over 2009–2023 and applying second‐generation dynamic panel estimators to address cross‐sectional dependence and endogeneity, we find that financial inclusion and oil export dependence are positively associated with per capita CO ₂ emissions. Crucially, the interaction between financial inclusion and hydrocarbon dependence is positive and statistically significant, indicating that the emissions association of financial deepening becomes stronger with increasing oil specialization. Marginal effects analysis confirms that the emissions effect of financial inclusion becomes progressively stronger in highly rent‐dependent economies. Subsample evidence further reveals pronounced heterogeneity, with the strongest conditional emissions effects observed among Middle East and North Africa exporters characterized by concentrated resource rents. The findings suggest that, absent complementary institutional and green‐finance reforms, financial inclusion may reinforce carbon‐intensive path dependence in hydrocarbon‐based economies rather than facilitate low‐carbon transition.