Climate Finance and Economic Development: A Cross-Comparison Between India and G7 Countries

Abstract

This study examines the Environmental Kuznets Curve (EKC) hypothesis, which suggests that carbon and greenhouse gas emissions initially rise with urbanization and industrialization but eventually decrease as economic development progresses. Focusing on India and G7 countries from 2003 to 2022, the analysis employs the PMG-ARDL model to investigate short-run convergence in carbon and total greenhouse gas emissions. The findings indicate significant convergence in emissions for both India and the G7, suggesting similar emission patterns over time. The study also reveals that domestic credit to private firms is significantly and positively associated with increased emissions, highlighting the role of financial development in environmental degradation. Conversely, alternative energy sources and labor contributions are found to significantly reduce carbon emissions in the long run. These results underscore the complexity of balancing economic development with environmental sustainability and the critical importance of policy measures that promote green energy and sustainable practices.