Exploring the N-Shaped Nexus between Financial Inclusion and Environmental Management in Nigeria: Evidence from the STIRPAT and DARDL Framework

Abstract

This study assesses the interplay between digital financial inclusion (DFI) and environmental sustainability (ENV) in Nigeria, considering the role of industrialization (IND), urbanization (URB), and energy consumption (EC). While DFI enhances financial access and green investments, its environmental impact remains uncertain. Extant studies predominately use indirect proxies, ignoring the direct indicators that capture its breadth and depth. Adopting the direct DFI indicators: mobile money accounts per capita (NMM), mobile money transactions (MMT), active digital accounts (ADA), and volume of mobile transactions (VMM). The study investigates whether DFI fosters ENV through renewable energy (REN) adoption or contributes to ENV degradation through increased energy consumption (EC). Using the Dynamic Autoregressive Distributed Lag model within the extended STIRPAT framework. Results confirm an N-shaped Environmental Kuznets Curve (EKC), where inclusive economic growth (IEG) initially degrades ENV (0.362 to 0.843), improves at higher income levels (-0.559 to -0.912) but rebounds again at very high incomes (0.341 to 0.592). IND reduces emissions (-0.518 to -0.682) except for VMM (0.112), indicating the environmental costs of DFI infrastructure. Trade openness (TOP) initially increases emissions (0.230) but lowers them in the long term (-0.536 to -0.741). Foreign direct investment (FDI) reduces emissions (-0.210 to -0.619), while REN initially decreases ENV (0.820) but improves ENV in the long term (-0.901). Error correction terms (-0.833 to -0.922) confirm rapid convergence to equilibrium. Policy recommendations include strengthening green financial regulations, promoting energy-efficient digital infrastructure, balancing TOP with ENV protection, and accelerating clean energy transitions to ensure sustainable IEG.