The effect of innovation and financial development on CO2 emissions

The Paris Climate Conference commits countries to contribute to the reduction of global warming through nationally determined contributions and calls on countries to reduce greenhouse gas emissions to improve environmental quality. Realizing the importance of innovation and financial sector development for environmental quality, several countries have identified ways to improve environmental quality, however, the relationship between innovation, financial development and pollution has not yet been studied. The results of generalized panel moments based on Data from 31 selected countries in the world in the period of 1990-2021 showed that innovation increases environmental pollution. Therefore, extreme and unbridled innovation beyond a certain point may be unhealthy for the environment, suggesting that there may be a potential threshold level of innovation beyond which the impact of innovation changes. For this possible threshold level, the innovation square is included in the environmental quality equation. However, the squared coefficient of innovation is meaningless. While financial development reduces pollution. The coefficient of the multiplicative interaction term is also negative, indicating that while financial development reduces environmental degradation, a higher level of innovations reduces the destructive effect of finance on carbon emissions. Real GDP per capita, urbanization and trade openness are also negatively related to CO2 emissions. On the other hand, human capital does not have a significant effect on CO2 emissions. On the other hand, human capital does not have a significant effect on CO2 emissions. In this regard, governments should take steps to reduce pollution by supporting production and consumption, saving energy by using solar energy and developing public transportation and using environmentally friendly technologies. Governments should also consider tax incentives for domestic and foreign companies to direct research and development and energy efficiency towards low-carbon production.