Formal and informal finance play a crucial role in promoting environmental sustainability, providing the necessary resources to support green projects and eco-friendly innovations. Formal finance, through banks and institutions, offers structured funding for large-scale sustainable initiatives, while informal finance helps smaller communities and entrepreneurs adopt environmentally friendly practices. Together, they drive growth towards a greener economy. Therefore, the current study contributing to the existing literature to examines the impact of formal and informal finance on environmental sustainability in 47 developing economies from 2014 to 2021. This study utilized the Generalized Method of moments (GMM), fixed effects, and robust least squares estimators. The findings show that formal finance, informal finance, and renewable energy negatively affect CO2 emissions (CO2E) while GDP, and population positively affect CO2E in developing countries. Developing country governments should expand access to formal financial institutions and services, enabling households and firms to invest in clean technologies and sustainable industries that help reduce CO2E. Policymakers in developing economies should regulate and gradually formalize informal financial channels, ensuring that their potential contribution to emission reduction is aligned with national environmental and economic goals.
Wu et al. (Tue,) studied this question.