Green Finance or Carbon Trap? The Role of Financial Development in Ghana’s CO₂ Emissions

Green Finance or Carbon Trap? The Role of Financial Development in Ghana’s CO₂ Emissions | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Green Finance or Carbon Trap? The Role of Financial Development in Ghana’s CO₂ Emissions Kwadwo Boateng Prempeh This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6430100/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract Purpose – This study examines the symmetric and asymmetric effects of financial development on CO₂ emissions in Ghana, incorporating the roles of natural resource rents and economic sustainability. Design/Methodology/Approach – Using annual data from 1990 to 2020, the study employs linear and nonlinear autoregressive distributed lag (ARDL and NARDL) models to assess long- and short-term relationships. Principal Component Analysis (PCA) is applied to construct an economic sustainability index. Findings – The results confirm a long-run relationship between financial development and CO₂ emissions. Financial development and natural resource rents contribute to increased CO₂ emissions, whereas economic sustainability reduces emissions. The NARDL model reveals asymmetric effects: positive shocks in financial development significantly increase emissions, while negative shocks have a neutral impact. Short-term effects suggest that financial development also drives emissions growth. Research Implications – The findings underscore the need for policies that promote financial development aligned with environmental sustainability. Policymakers should incentivize green financing, strengthen environmental regulations for resource extraction, and integrate sustainability into economic policies to mitigate emissions. Originality/Value – This study is among the first to explore the asymmetric impact of financial development on CO₂ emissions in Ghana, while also considering natural resource rents and economic sustainability. By highlighting the nonlinear effects, the research provides new insights for policymakers and scholars examining the environmental consequences of financial sector expansion. Environmental Policy Finance Econometrics Development Economics Financial development CO2 emissions economic sustainability natural resource rents ARDL NARDL Ghana Full Text Additional Declarations The authors declare no competing interests. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-6430100","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":441803429,"identity":"3ffd52a7-ca2c-4f6f-b495-08b3aab15d9b","order_by":0,"name":"Kwadwo Boateng Prempeh","email":"data:image/png;base64,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","orcid":"https://orcid.org/0000-0001-8193-6676","institution":"Sunyani Technical University","correspondingAuthor":true,"prefix":"","firstName":"Kwadwo","middleName":"Boateng","lastName":"Prempeh","suffix":""}],"badges":[],"createdAt":"2025-04-11 16:47:52","currentVersionCode":1,"declarations":{"humanSubjects":false,"vertebrateSubjects":false,"conflictsOfInterestStatement":false,"humanSubjectEthicalGuidelines":false,"humanSubjectConsent":false,"humanSubjectClinicalTrial":false,"humanSubjectCaseReport":false,"vertebrateSubjectEthicalGuidelines":false},"doi":"10.21203/rs.3.rs-6430100/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-6430100/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":80623772,"identity":"f24bc818-d035-409f-b7ce-edfb9eddeeb1","added_by":"auto","created_at":"2025-04-15 10:18:05","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":436899,"visible":true,"origin":"","legend":"","description":"","filename":"SSRN.pdf","url":"https://assets-eu.researchsquare.com/files/rs-6430100/v1_covered_d0d5d096-8776-4814-beaf-e78924d0f515.pdf"}],"financialInterests":"The authors declare no competing interests.","formattedTitle":"\u003cp\u003e\u003cstrong\u003eGreen Finance or Carbon Trap? 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