Analysis of the Impact of Information and Communication Technology, Digitalization, Renewable Energy and Financial Development on Environmental Sustainability

Abstract

In recent years, policymakers, international energy, and environmental organizations have posited that advancements in information and communication technology, digitalization, renewable energy, and financial development can facilitate a smoother and quicker transition toward a greener and smarter global economy. This study employs the Panel Vector Auto-Regression model to evaluate this assertion across the top ten most polluted countries from 1995 to 2018. The empirical findings indicate that while individual indicators of information and communication technology have mixed impacts, the utilization of a digitalization-based principal component analysis index provides strong evidence of digitalization's positive effect on environmental quality. Additionally, the results suggest that renewable energy and the economic complexity index also contribute to environmental improvement. Therefore, the empirical evidence underscores the significant role of digitalization, information and communication technology, and renewable energy in enhancing environmental sustainability in the most polluted countries. Moreover, the findings indicate that although a financial development shock initially worsens environmental quality in the first year, it leads to improvements from the second year onwards. These empirical insights offer various policy recommendations regarding information and communication technology, digitalization, renewable energy, and financial development, which could support the achievement of the United Nations' Sustainable Development Goals.