Fintech development and environmental sustainability: Does income inequality matter?

Abstract

This paper investigates whether and how fintech development is associated with environmental quality. A machine learning technique—the principal component analysis (PCA), is adopted to construct an index that measures fintech development. The two-step system generalised method of moments (GMM) addresses the potential endogeneity in the established nexus. Analysing a panel of 42 countries from 2012 to 2021, we found that fintech development can improve environmental quality by encouraging low-carbon energy consumption and mitigating anthropogenic polluting emissions. Our analysis further reveals that high-income inequality, a socioeconomic issue, counteracts the favourable features of fintech development on the environment. Our findings are robust across various additional analyses and environmental quality indicators. This study, therefore, contributes to the scarce but growing literature on the fintech-environment nexus.