Digital Financial Inclusion, CO2 Emission and High Quality Development: A Panel Data Approach from South Asian Economies

This study examines that relationship between the High Quality Development index (HQDI) and Digital Financial Inclusion (DFI) in nine South Asian Economies between 2013 and 2023. By using CO2 emissions as a mediating variable, it examines the direct and indirect effects of DFI on development quality. The Endogenous Growth Theory, which highlights the financial integration and technological advancement as important forces behind sustainable development, serves as the theoretical underpinning for the study. To evaluate the impact and mediating pathways, the study used the Sobel mediation analysis and fixed effects panel regression. The findings shows that DFI increases CO2 emissions and positively and significantly contributes to HQDI, suggesting a trade-off between development and environment. The relationship between DFI and HQDI founds to be mediate by CO2 emissions, indicating that although digital finance promotes growth, it also presents environmental challenges. To make the model stronger, the control variables like GDP, population growth, and the use of renewable energy also added. These findings have significant implications for policymakers who aim for a balance environmental sustainability and digital transformation. Encouraging green digital finance policies could improve the region’s high-quality development while reducing carbon risks.