Innovation and Green Development 4 (2025) 100223

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Innovation and Green Development

journal homepage: www.journals.elsevier.com/innovation-and-green-development

Full Length Article

Do green finance and health expenditures lessen the ecological footprint to

ensure sustainable development?
Adnan Ali a, Faisal Faisal a, c, d, *, Aliya Zhakanova Isiksal b, Iman Sulaiman Amur AL Maktoumi a
a
Faculty of Business, Sohar University, Sohar, 311, Oman
b
Near East University, Nicosia, TRNC, via Mersin 10, Türkiye
c
World Peace University, Sht. Kemal Ali Omer Sk., No.22 Yenisehir, TRNC, Lefkosa, Nicosia, Cyprus, Mersin 10, Turkey
d
Department of Accounting and Finance, Institute of Business studies and Leadership, Abdul Wali Khan University, Mardan, KP, Pakistan

A R T I C L E I N F O A B S T R A C T

Keywords: Green finance influences both health expenditures and environmental quality. Focussing on SDGs 3, 7, and 8, this
Green finance study investigates the nexus between ecological footprint, green finance, health expenditures, renewable energy
Health expenditure consumption, and economic growth using data from 2000 Q1-2020 Q4. Moreover, this study also explores the
Environmental quality
interaction effect of green finance and health expenditures in the ecological footprint function by employing the
RALS cointegration
Ecological footprint
novel Fourier approximation techniques. The series integration order is investigated using the Fourier ADF and
Fourier GLS unit root test. The study applies the bounds test and residual augmented least squares cointegration
technique (RALS) for investigating the long-run nexus. Both tests provide mutual reinforcement for each other's
results. The long-run elasticity is identified using the ARDL model. The findings show a negative and significant
impact of green finance, economic growth, and renewable energy consumption on ecological footprint. Further,
the interaction between green finance and health expenditures has a negative impact on environmental quality.
Moreover, the causal interactions suggest that green finance enhances the quality of the environment, which is
one of the objectives in line with both SDGs 3 and 7. This further suggests that adopting green practices can create
a clean environment and thus improve environmental quality.

1. Introduction expansion of every society (Ahmad, Usman, Hussain, Jahanger, & Abrar,
2022). It has been stated that the amount of sustainable energy should
A healthy nation is a crucial element of economic development. If the exceed 60 percent of the total energy demanded by households and firms
nation is healthy, productivity increases, which consequently raises in- by the end of 2030, which would promote environmentally-friendly
come per capita. Expenses directed to health raise productivity, which economic expansion (Azimi & Rahman, 2024) and decrease the ecolog-
increases the level of income and prosperity of the population. Based on ical footprint (Sahoo & Sethi, 2021).
the United Nations 17 Sustainable Development Goals (SDGs), health is On the other hand, green projects lead to positive externalities that
considered a fundamental human right, and SDG-3 promotes “better improve the economic and social aspects of life. To foster the environ-
health and well-being”. Reducing emissions was a key concern for poli- mental benefits of financial projects, it is essential that new financial
cymakers even during the global COVID-19 pandemic (Chapungu et al., structures and policies known as green finance are introduced and fol-
2022). In addition, following the pandemic, the importance of health was lowed (Berensmann & Lindenberg, 2019). Green finance theory presents
highlighted. Moreover, environmental degradation affects the pop- a unified evolution of the relation between finance and the environment
ulation's health through different channels such as the depletion of en- (Salazar, 1998). Also known as sustainable finance or environmental
ergy resources, as well as air and water pollution. There is an inverse finance, green finance differs from conventional finance as it aims to
association between pollution and health expenses, which is more pro- decrease environmental risks and environmental degradation (Zerbib,
nounced in developing countries (Yadav et al., 2023). 2019). It is a financial innovation that balances economic growth and the
In addition, sustainable energy is essential for the economic environment (Naqvi et al., 2021). Green finance can act as a driver of

* Corresponding author. Faculty of Business, Sohar University, Sohar, 311, Oman.

E-mail addresses: [email protected], [email protected] (A. Ali), [email protected], [email protected] (F. Faisal), [email protected] (A. Zhakanova
Isiksal), [email protected] (I.S.A.A. Maktoumi).

https://doi.org/10.1016/j.igd.2025.100223
Received 13 July 2024; Received in revised form 8 January 2025; Accepted 29 January 2025
Available online 18 March 2025
2949-7531/© 2025 The Authors. Published by Elsevier B.V. on behalf of Business School, Zhengzhou University. This is an open access article under the CC BY-NC-ND
license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
A. Ali et al. Innovation and Green Development 4 (2025) 100223

efforts to achieve a low-carbon environment. Even though green in- environmental degradation. Finally, green finance stimulates green
vestments in advanced technology carry higher risk and have longer projects such as sustainable buildings and transportation. These actions
return periods, aggravated by the fact that the resources directed to green positively affect the population and cities, while also bolstering residents’
finance projects are limited, the implementation of green finance projects health. The moderating effect of green finance through the channel of
leads to a reduction in conventional energy consumption and higher health expenses produces a higher effect since it will increase the flow of
environmental protection, thus decreasing emissions. In addition, air funds into sustainable technologies used for health improvements, thus
pollution has a negative effect on health, which can be more severe for resulting in a decrease in ecological footprint generated by outdated
developing states in particular (Alimi & Ajide, 2021), and a higher healthcare oriented outdated technologies that consume high amounts of
ecological footprint results in higher health expenses (Alimi et al., 2020; energy. Further, the moderating nexus of green finance is compelling, as
Yahaya et al., 2016). Thus, increasing health expenditures decreases it is augmented by investments in more efficient instruments that provide
environmental degradation and alleviates the ecological footprint. higher energy storage, decrease health issues and alleviate health risks,
Green financing flows are concentrated in financial resource alloca- which consequently lowers the ecological footprint.
tion to high technology and high-efficiency industries that generate In this study, Pakistan has been chosen to examine the phenomenon
minimal pollution (Liu et al., 2019; Zhang & Chen, 2023). Thus, green of interest due to several reasons. Pakistan is a highly populated country
financial inflows can sustain the capital and resource allocation effects by with weak environmental regulation, significantly reduced health ex-
channelling capital from highly polluting and inefficient areas to in- penditures and is prone to environmental changes causing severe struc-
dustries that are capable of dealing with environmental degradation. tural damage and health problems. However, there is a huge potential for
Therefore, increased green financial flows can alleviate the ecological wind and solar energy generation in Pakistan (World Bank, 2020).
footprint. Moreover, Pakistan is a developing country that is the 5th most populous
It is shown in Fig. 1 that fossil fuel consumption is high in Pakistan globally, with a population approaching 225 million. This represents one
although there was a decreasing trend from 2000 to 2003, with an of the main challenges in providing quality health facilities to its citizens
average of about 65 percent of electricity production. However, the as a result of reduced funds. Despite various environmental, health,
health expenses are relatively low, with an increasing trend being institutional, and financial challenges, Pakistan has targeted a decrease in
observed from 2017. The healthcare sector consumes a high amount of environmental pollution of approximately 50% by 2030 by increasing
unsustainable energy (Apergis et al., 2020). The decrease in the use of the amount of renewable energy and number of electrical vehicles, while
fossil fuels implies that there is an increase in the adoption of green also banning coal importation (Wijeweera, 2023). However, due to the
financing, which leads to lower reliance on fossil fuels. However, the population boom, the ecological footprint and financial needs of Pakistan
amount of fossil fuel consumed remains high, and conventional health remain high, leaving the country highly exposed to climate risks (Wije-
care units utilize significant amount of energy. For example, intensive weera, 2023). Pakistan was ranked as the 35th most vulnerable country
care units that operate 24 h are examples of aspects of the healthcare in terms of dealing with climate change impacts (Qainnew, 2021). In
industry where CT/MRI scanners and workstations have high energy addition, the healthcare system of Pakistan faces various challenges,
utilization levels (Apergis et al., 2020), (Heye et al., 2020), (Roletto et al., primarily the insufficient amount of funding with only about USD 38 per
2024), which reduces environmental sustainability and increases the capita spent on health expenses. This amount is comparatively lower
ecological footprint. Therefore, an increase in health expenditures is than the expenses of other developing states; for example, the
expected to boost environmental sustainability. Sustainable finance leads Philippines, Ghana, and India spend USD165, 85, and 57 per capita on
to environmental protection actions, such as biodiversity conservation healthcare, respectively. Even though there has been a slight increase in
and ecological restoration. Thus, such protection and ecological resto- healthcare expenses in Pakistan, it was still 2.95 percent of GDP in 2020
ration measures result in public health improvements as they can pro- (Macrotrends, 2024). Therefore, there is an enormous need for greater
mote clean water consumption and higher ecological sustainability. In investments to improve the preparedness to deal with climate change
addition, green finance provides funds to encourage forestation, water risks and the health system. Based on the above discussion, it is critical
protection and food security, which results in improved health and lower and timely that the following questions are answered: What is the effect

Fig. 1. Health expenses and fossil fuels trends in Pakistan.

Source: Authors' calculation based on data taken from https://ourworldindata.org/

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A. Ali et al. Innovation and Green Development 4 (2025) 100223

of green finance and health expenses on the ecological footprint in maintaining projects that minimize negative environmental effects and
Pakistan? What is the moderating effect of green finance through the lead to environmental sustainability (Friede et al., 2015). Additionally,
health expenses channel on ecological footprint? green finance is a policy that aims to bring private capital to sustainable
This research makes the following contributions: Firstly, according to sectors by providing financial services that include green equity, bonds,
our knowledge, the majority of the existing research has concentrated on stocks, insurance and lending to promote clean energy. Moreover, green
the effect of conventional finance in reducing emissions (Isiksal, 2022; finance is a concept where banking and non-banking institutions
Do
ganlar et al., 2021), thus revealing the existence of a research gap in consider the environmental effects of market participants while taking
terms of examining the role of green finance. Moreover, to cope with decisions.
climate change, achieve green energy sustainable development goals Ecological finance theory (Lagoarde-Segot & Martínez, 2021) states
(Alam et al., 2024), and preserve a greener environment for future gen- that the conventional financial system is not sustainable, and it is
erations, there is a need to examine the nexus between green finance and a grounded on continual growth of resources over exploration. The major
more comprehensive measure of environment degradation such as concept of this theory involves the reworking of financial economics with
ecological footprint, especially in the context of emerging countries. Sec- the integration of ecological principles into finance as a reaction to
ondly, Pakistan is a state with a high population and low health expenses, environmental crises. It criticizes the conventional neoclassical finance
which also faces environmental challenges (Farooq & Usman, 2023). It is paradigms that concentrate on the efficiency of the markets, maximiza-
essential that the amount of health expenses is raised and innovative health tion of profit, and individualism. Therefore, it introduces a model that
equipment is used to reduce the ecological footprint. Therefore, this adjusts the financial systems with the biophysical and social restraints of
research concentrates on the impact of health expenses on the ecological the Earth. This theory supports resilience, diversity, ecological trans-
footprint to determine whether health expenses have a positive or negative parency, and self-regulation thoughts evolved from biology. It indicates
effect on environmental sustainability. Thirdly, it is essential that in- the significance of financing sustainable practices by considering the
vestments are made in the health sector and sustainable finance in limits of the biosphere, with the application of biological metaphors
emerging states like Pakistan. This implies that investments in innovative including resilience, diversity, and the application of transparency to
sustainable energy technologies will improve health equipment, which assess ecological effects. The theory supports financial modelling that
could significantly affect environmental sustainability. Therefore, the encourages continuous resilience and diversity, as well as long-term
research evaluates the moderating role of green finance factors and health ecological sustainability. Therefore, according to this theory, it is
expenditures on ecological footprint. Fourthly, the research employs the essential that the financial system is restructured and aligned with
latest cointegration technique, Residual Augmented Least Squares (RALS) ecological limits to address health expenses, reduce energy utilization
(Yilanci et al., 2023), which considers high moments of non-normally and therefore decrease the ecological footprint. Ecological finance theory
distributed residuals and produces more powerful test outcomes. In addi- supports the long-term creation of value, especially in regard to main-
tion, the RALS approach uses nonlinear moment conditions, which means taining a sustainable environment. This implies that the reduction of
it is not necessary to utilize nonlinear estimation techniques. Finally, the dependence on fossil fuels will promote cleaner industries and decrease
single Fourier frequency Toda-Yamomoto causality technique is applied to the respiratory diseases triggered by pollution. Health care expenses,
investigate the causal interaction by taking structural breaks into account, through the channel of sustainable financing, can decrease the preva-
which further improves the causal information of the variables. Therefore, lence of chronic diseases, as it will improve the environment by
the main objective of this research is to examine the joint effect of sus- decreasing air pollution.
tainable green finance and health-oriented expenses on ecological foot- In addition, with green financing, a higher amount of capital is allo-
print. Thus, this study aims to analyse the association between sustainable cated to environmentally-friendly projects that enable capital to be
green investments, such as investments in sustainable energy, sustainable allocated to green investments (Huang et al., 2022) (Freebairn, 2012). By
technologies, and environment-oriented policies, which might lead to a considering environmental regulations and capital flows, Lu et al., (2022)
decrease in the ecological footprint. In addition, it aims to explore the found that sustainable finance can prevent the flow of capital to
health care expenses related to environmental health issues and diseases high-carbon emitting firms and companies with the rational allocation of
caused by environmental pollution that affect the ecological footprint. capital to green projects, and financial leverage can be used to achieve
Moreover, it also aims to explore the moderating effect of health expenses climate goals, which is an efficient tool for reducing carbon emissions
on ecological sustainability via the sustainable finance channel. Lastly, this and promoting sustainable expansion (Jin et al., 2022). Therefore, the
study suggests policy recommendations for the incorporation of sustain- green financial policies’ lending rates are high and credit amounts are
able finance and health care strategies to attain ecological sustainability. limited for high-polluting companies. These policies encourage com-
Therefore, this research will contribute to the exploration of collaboration panies to move to clean energy projects and sectors that reduce emission
strategies in the financial and health sectors to achieve higher ecological levels. In contrast, firms and companies that are involved in clean energy
sustainability. sectors could obtain loans with lower interest rates and are provided
Therefore, the rest of this research is structured as follows: Part II more opportunities for credit that would further decrease the level of
concentrates on the theoretical framework, literature review and emissions (Mirza et al., 2023; Wang & Wang, 2021).
research gap. Part III presents the methodology, Part IV explains the re- Green finance reduces emissions, supports renewable energy, and
sults, and Part V provides the conclusion for this study. improves environmental quality, which leads to a reduction in
environmental-related diseases. In addition, green finance safeguards
2. Literature review water and food security. It also stimulates green projects such as sus-
tainable buildings and transportation. In addition, sustainable green
2.1. Theoretical framework finance encourages environmental actions such as the protection of for-
ests, conservation of biodiversity, and restoration of the ecology.
The roots of green finance originate from the concept of the “green Therefore, these actions bring health benefits since residents will be able
economy”, which was initially introduced in the 1980s in the “Blueprint to consume cleaner water, environmental degradation will be reduced,
for a Green Economy” report published by Pearce, Markandya, & Barbier, and forest cutting will be minimized, ultimately leading to the prevention
(2013). The green economy concept originated as a response to fast of disasters. These actions positively affect the population and cities,
industrialization, natural resources depletion and environmental degra- while bolstering residents’ health. Furthermore, the moderating effect of
dation (Platform, 2013). Green finance is also known as sustainable green finance via the health expenses channel will have a stronger effect
finance, climate finance, and environmental finance. Green finance in- on the ecological footprint. The funds will flow into sustainable tech-
cludes different financial instruments, activities and services aimed at nologies aimed at improving health, and the usage of these advanced

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A. Ali et al. Innovation and Green Development 4 (2025) 100223

technologies will lead to a decrease in the ecological footprint, which is were implemented correctly. They also emphasised that with the
caused by outdated healthcare-oriented equipment that utilizes sub- implementation of green finance, the reliance on fossil fuels decreased,
stantial amounts of energy. Thus, the moderating nexus of sustainable which could help to achieve the objectives of the sustainable develop-
finance is augmented by funds flowing into more powerful technologies ment goals for clean energy. Another study by Glomsrød & Wei, (2018)
and types of equipment that are energy efficient, which leads to the emphasised the importance of green finance by predicting that its use
reduction of health issues and alleviation of health risks that conse- could minimize fuel consumption by up to 2.5% by 2030. Interesting
quently decrease the ecological footprint. outcomes were reached by another research (Kahia & Omri, 2024) for
Saudi Arabia in which the ARDL technique was employed for the period
2.2. Nexus between green finance, renewable energy, health expenditures 1990–2020. It was presented that green finance lessens environmental
and environmental degradation (ecological footprint and CO2 emission) pollution by protecting the biodiversity, sustaining clean drinking water
and providing overall environmental protection, thus preserving the
The majority of the existing research has concentrated on the effects ecosystem. Another study (Habib et al., 2024) revealed that green finance
of financial development, financial integration and ecological footprint reduced ecological footprint. Interesting outcomes were presented by
€
(Olowu et al., 2018; Ozkan et al., 2024). Climate change continues to be (Triki et al., 2023), who presented that the effect of green finance was
one of the most important issues that needs to be addressed. The role of positive and significant in the short term by applying the ARDL tech-
green finance is that it leverages investment in shaping a green and clean nique. The authors also examined the effect of health expenses on
environment. Various studies have examined this nexus (Ali et al., 2022; ecological footprint and found that health expenditure was an important
Khan et al., 2022; Numan et al., 2023; Sampene et al., 2023; Sharif et al., predictor of ecological footprint in Saudi Arabia. Further, the authors
2024; Sun & Rasool, 2023; Vardar et al., 2023; Zhang & Chen, 2023), argued that the negative association of health expenditure and carbon
showing that green finance negatively affects ecological footprint. Chang emission is due to increase use of the renewable energy to achieve the
et al. (2022) examined the nexus between green finance and environ- sustainable development that lessens ecological footprint. Studies on the
mental degradation for ten states with the highest green financing levels association among health expenses and environmental quality have
by employing the Quantile-on-Quantile approach. Green bonds were concentrated on different regions. For example (Apergis et al., 2020),
used as a proxy for green finance, while ecological footprint represented showed that increased emissions augment the health expenses in 178
environmental degradation. It was found that in eight states, environ- states. The study by Ajide and Alimi (2020) for sub-Saharan Africa
mental degradation was curbed by the effect of green finance. In addi- demonstrated that emissions boost healthcare expenditures. Important
tion, Khan, M. A et al. (2022) examined the effect of green finance on outcomes by Alimi and Ajide (2021) demonstrated that ecological foot-
ecological footprint for twenty-six economies in the Asian region. The print decreased the life expectancy of humans, increased the mortality
study applied the ordinary least square baseline model. The findings of rate and augmented the health expenditures. Interesting outcomes were
the study highlighted that green finance lessens ecological footprint and revealed by Bilgili et al. (2021), who found a negative effect of public and
suggested that policymakers should continue to invest in sustainable private health expenses on CO2 for Asian states by applying the FMOLS
finance. Moreover, Xuecheng and Yang (2023) explored the effect of and GMM techniques. Another study by Murjani et al. (2020) reported
green finance on carbon dioxide emissions in the US and China by using that an increased amount of hospitals and health budget augmented the
Bootstrap Autoregressive Distributed Lag for the period 1990–2020. The ecological footprint of the ASEAN states. Mixed outcomes were presented
negative effect of green finance on emissions was presented by the au- by Ganda (2021), who examined the health expenditures’ impact on CO2
thors. Another study (J. Han, Shah, & Baloch, 2024) employed Method of during the period from 2000 to 2017 by applying the FMOLS technique.
Moments Quantile Regression and reported that green finance and sus- The outcomes of aggregate health expenses revealed a negative
tainable energy mitigated emissions in the BICST states during the period connection to CO2, and a disaggregated form of health expenses as pri-
2000–2021. The research by Al-Mulali et al. (2024) on the E7 states for vate health expenses also had a negative association with CO2. On the
the 1996–2019 time span employed different estimation techniques, contrary, it was found that domestic government health expenses and
including mean group, pooled mean group, and dynamic fixed effects, to external health expenses augmented emissions.
examine the effect of green finance and sustainable energy on environ- The existing research has also concentrated on the association among
mental degradation. Ecological footprint and carbon emissions were used sustainable energy, economic expansion and environmental degradation.
to represent environmental degradation, while climate change adjust- Thus, the negative effect of sustainable energy on emissions was explored
ment technologies were used as a proxy for green finance. The outcomes for Vietnam from 2000 to 2022 (Hoa et al., 2023) as well as for newly
of the research showed that sustainable energy and green finance industrialized states (Adebayo et al., 2023). The negative effect of sus-
significantly mitigated environmental degradation in the region. More- tainable energy was also supported by (Raihan, 2023a) for Colombia by
over, these findings were confirmed by another research in China that using the Dynamic ordinary least square approach for the period from
employed quarterly data from 1995Q1 to 2019Q4 using the ARDL and 1990 to 2020 as well as for the Kingdom of Saudi Arabia by (Habib et al.,
STIRPAT techniques (F. Han, Shah, & Baloch, 2024). The negative effect 2024). In addition, it was found that economic expansion curbed the
of green finance on ecological footprint was confirmed by research on emissions in Colombia (Raihan, 2023a). Similar findings were presented
Indonesia (Chien et al., 2024) by using the STIRPAT technique and the for South Korea, Indonesia, and China (Raihan, 2023b; Raihan et al.,
time period of 1995–2020. The study employed another proxy for green 2023; Raihan & Bari, 2024).
finance, namely investments in products for environmental safety. From the literature, it has been concluded that several studies have
Zahoor et al. (2022) found that clean energy investments had a detri- identified the nexus between CO2 emissions and financial development.
mental influence on ecological footprint and carbon emissions in China However, the role of green finance has received minimal attention in the
during the period from 1970 to 2016 by using the fully modified ordinary existing literature, particularly in terms of highlighting the role of health
square (FMOLS) and dynamic ordinary square techniques (DOLS). expenditure in the green finance function, specifically the interaction
Another interesting study presented by (Zhao & Li, 2024) is that the role of green finance and health expenditure for ensuring a clean and
green financial index mitigated the ecological footprint in China during green environment. This underlines the importance of this study in
the period 2004–2021. In addition (Hossain et al., 2024), emphasised in highlighting the role of green finance in terms of whether it lessens
their study on China that green finance had a promoting effect on envi- ecological footprint, which represents a threat to the community.
ronmental sustainability during the period from 2000 to 2021 by using Moreover, to address climate change, achieve green energy sustainable
the augmented autoregressive distributed lag approach. Liu et al., (2019) development goals (Alam et al., 2024), and preserve a greener environ-
and Brandi et al., (2020) identified the importance of green finance by ment for future generations, there is a need to examine the nexus be-
stating that it could improve environmental quality if related policies tween green finance and a more comprehensive measure of environment

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A. Ali et al. Innovation and Green Development 4 (2025) 100223

degradation such as ecological footprint, especially in the context of an aligned with sustainable development is a relatively new phenomenon,
emerging country like Pakistan. few studies have focused on green finance in the ecological footprint
function. Consequently, within the growing literature, it is important to
2.3. Research gap in the literature highlight the effect of green finance on ecological footprint in an
emerging country like Pakistan, as emerging economies have recently
The summary of the literature review is presented in Table 1. Many attracted attention (Bhatnagar & Sharma, 2022). Therefore, this study
studies have examined the nexus between CO2 emissions and economic investigates the nexus between green finance, health expenditure,
growth. The term green finance began to receive interest in the academic renewable energy consumption, economic growth, and ecological foot-
literature in the early 2000s. Moreover, as the financial system being print. Previous studies have used CO2 emissions as a proxy for identifying
environmental quality. However, this study used ecological footprint,
which is a more comprehensive proxy that measures how resources are
Table 1
Summary of the literature review. consumed and how much waste is generated by humans. Further, this is
the first study to our knowledge that examines the moderating effect of
Authors Variables used Techniques Data span Findings
green finance through the channel of health expenses on ecological
used
footprint. The aim is to identify the importance of green finance in terms
Khan Ecological Fixed affect 2011–2019 Green finance
of whether it improves health quality and enhances environmental
et al. footprint, green reduces
(2022) finance, energy ecological quality.
consumption, footprint
population 3. Model specification and data sources
Numan ecological Driscoll- 2006–2020 Green finance
et al. footprint, green Kraay reduces
This study investigates the nexus between green finance, ecological
(2023) finance standard ecological
error footprint footprint, economic growth, health expenditures and renewable energy.
Sampene Ecological CS-ARDL, DH 1990–2017 Renewable As discussed in the previous sections of the paper, the ecological footprint
et al. footprint, green causality test energy and not only degrades the environment but also severely affects human
(2023) finance, green finance
health. This has prompted environmentalists and academic scholars to
renewable reduces
energy ecological study the effect, make recommendations, and take corrective measures in
footprint order to preserve the global ecosystem. Therefore, this study partially
Sharif Green finance, Quantile 1990–2018 Renewable follows the model of Triki et al. (2023) by using ecological footprint as a
et al. renewable ARDL energy and function of green finance, health expenditures, economic growth, and
(2024) energy and CO2 (QARDL) green finance
renewable energy. On the other hand, this study is also different from
emission reduces while
GDP increases Triki et al. (2023) as it includes green finance, which is important in the
CO2 emission. context of the ecological footprint and health expenditure nexus. Further,
Sun and Ecological Quantile-on- January Green finance the studies by Bhuvaneskuma et al., (2024) and Karimi Alavijeh et al.,
Rasool footprint, green Quantile 2005 to declines
(2024) used the CO2 emissions nexus in a health expenditure function.
(2023) finance December ecological
2020 footprint
However, this study is different in the sense that it includes ecological
Vardar green finance, FMOLS, 2000–2018 Renewable footprint, which is a more comprehensive proxy for measuring emissions
et al. ecological DOLS, PMG- energy and as a function of health expenditures. Moreover, the role of green finance
(2023) footprint, ARDL green finance has also been ignored in the aforementioned studies. Therefore, based on
economic have a negative
the above discussion, this study proposes ecological footprint as a func-
growth, impact on
renewable ecological tion of green finance, health expenditures, economic growth, and
energy footprint renewable energy. The model can be written as follows:
Zhang Green finance Parametric 1998Q1- Green finance,
and and ecological and non- 2020Q4 renewable ln EFOP ¼ α0 þ β1 ln GFINt þ β2 ln RECOt þ β3 lnGDPt þ β4 lnHEPt þ et
Chen footprint, parametric energy lessens
(1)
(2023) renewable approaches ecological
energy footprints.
Rongyan Green finance Random 2010–2015 Significant
where EFOP, GFIN, RECO, GDP and HEP represent ecological footprint,
et al. and regional effect effect of green green finance, renewable energy consumption, economic growth and
(2019) ecological financial health expenditures, respectively. Moreover, the variables have been
efficiency expansion converted into their natural logarithm form to lessen any potential het-
varies in
eroscedasticity, if it exists. The time span is chosen based on data avail-
different
regions ability. Moreover, the study variables have been chosen based on the
Pervaiz Carbon P-DOLS, P- 2000Q1- Health theoretical framework and previously published literature, as discussed
et al. emission, FMOLS 2014Q4 expenditure in the preceding section. Further, Table 2 shows studies from the existing
(2021) financial effects carbon literature that have used the selected variables.
development, emission
renewable positively,
Table 2 shows the variables along with information on studies that
energy while have used the same variables. The proxy for green finance in this study
consumption renewable has been taken from (Our World in Data source),1 which leverages the
energy has a developing economies to promote clean energy research by diverting
negative and
funds to green and clean energy projects. Likewise, although many
significant
effect on different proxies exist for measuring environmental pollution, they
carbon cannot measure environmental pollution from a holistic perspective.
emission. However, this study uses ecological footprint, which is more compre-
Yacour CO2 emissions Pooled OLS, 1990–2019 U-shaped nexus hensive in measuring environmental pollution associated with water,
et al. and healthcare Fixed and between
(2024) expenditure random effect healthcare
and DOLS, expenditure
FMOLS and CO2 1
https://ourworldindata.org/.

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A. Ali et al. Innovation and Green Development 4 (2025) 100223

Table 2 Moreover, this method offers a better insight facilitating data series
Variables detail. comprehension with more in-depth analysis that displays better trend
Variables Symbols Indicators proxy Studies Source analysis and forecasting of the series (Shahbaz et al., 2023) as cited in
definition using Shahbaz (2024). Therefore, from this point onwards, this study adopts
these the use of quarterly data from 2000 Q1 – 2020 Q4.
variables

Ecological EFOP GHA per person Hussain QOG, Quality

Footprint of et al. of Government 3.1. Methodology
consumption (2023); Institute
per person Butt et al. Standard
(2024) Dataset
3.1.1. Unit root test
Green Finance GFIN International Liu et al. Our World in To proceed with the time series data, it is important to identify the
financial flows to (2023) Data integration order of the series. Various conventional unit root tests exist
developing in time series data analysis procedures that determine the integration
countries in
order of the series, including the Augmented Dickey Fuller (ADF) unit
support of clean
energy research root test as proposed by Dickey & Fuller, (1981) and the Philips Perron
and development unit root test as suggested by Perron, (1989). After the study of Perron,
and renewable (1989), studies investigated the integration order of series in the pres-
energy ence of structural breaks. This is because the test of Perron, (1989) has a
production,
limitation as it cannot identify structural breaks (SBs) in a series.
including in
hybrid systems Therefore, rejecting the null hypothesis in a time series in the presence of
(millions of structural breaks will provide biased results. Further, there are two un-
constant 2020 desirable methods that can be used to predict the integration order of the
United States
series. The first is to use dummy variables that can consider sharp
dollars)
Health HEP PPP (Current Pervaiz World Bank, structural breaks. Secondly, the structural break dates need to be known
Expenditures International $) et al. (2024) for the integration order to be identified. However, in the seminal study
per capita (2021) by Becker et al., (2006), it was suggested that the Fourier function be
Renewable RECO Renewable energy Majeed World Bank, used while identifying the integration order. The Fourier function has the
Energy consumption (% et al. (2024)
characteristic that it does not need to have prior information about the
Consumption of total final (2022)
energy breaks and their specific location. Further, it is important to predict the
consumption) integration order of the series in the presence of SBs. Using this moti-
Gross Domestic GDPT GDP per capita Shahbaz World Bank, vation, this study applies the Fourier Augmented Dickey Fuller unit root
Product (constant LCU) et al. (2024)
test (FADF) as proposed by Enders & Lee, (2012). The FADF can be
(2024)
applied using the below equation to the series of our study:

grazing, carbon emissions, deforestation etc. (Ansari et al., 2022). Δyt ¼ α þ βyt  1 þ δ1 sinð 2π kt T Þ þ δ2 cosð 2π kt T Þ þ et (3)
Moreover, health expenditure is used as a proxy to capture its effect on Where t represents the time trend, T shows the sample size, and k
ecological footprint. Further, renewable energy data is extracted from the shows the frequency. The optimal frequency can be chosen based on the
World Bank and used as a proxy to measure the consumption of renew- frequency value that produces the minimum residual sum of squares
able energy free from carbon emissions. The sign of green finance and (RSS). Christopoulos & Leon-Ledesma, (2011) argued that the integer
renewable energy is anticipated to be negative, implying a decrease in frequency shows that the breaks are temporary, while on the other hand,
ecological footprint. The expected sign for health expenditure is positive, the fractional frequencies can capture permanent breaks. The ADF stat is
implying that increased expenditures incurred on health cause an up- determined after choosing the appropriate Fourier function. The null
surge in environmental pollution and vice versa. Moreover, Table 2 hypothesis β ¼ 0 is investigated against the alternative hypothesis. The
shows the list of variables along with the studies in which these variables series used in this study is first investigated by determining the statio-
were used. Furthermore, this study also investigates the interaction of narity at level and then at the first difference. The robustness of the FADF
green finance and health expenditure to determine whether green test is confirmed using the Fourier generalised least square (FGLS) unit
finance moderates the health expenditure and ecological footprint nexus. root test. The decision regarding stationarity is based on the ADF stat
The model proposed in Eq. (1) can be re written in Eq. (2) as follows. value. Moreover, the ADF stat value in absolute terms must be higher
than the critical values at alpha 1%, 5%, and 10% to reject the null hy-
ln EFOP ¼ α0 þ β1 ln GFINt þ β2 ln RECOt þ β3 lnGDPt þ β4 lnHEPt pothesis assuming that the series contains no unit root and is stationary at
þ β4 lnGFIN*HEPt þ et (2) either level or 1st difference.

where GFIN*HEP represents the interaction term constructed from green 3.1.2. Residual augmented least square-fourier ARDL
finance and health expenditure. The annual data has been collected from The cointegration test predicts the long-run relationship between the
2000 to 2020 for all the variables. The list of variables along with the variables provided that the stationarity of the variables has been inves-
data sources are presented in Table 2. However, due to the small sample tigated. Traditional cointegration tests can only be applied to series with
size, this study further uses the quadratic match-sum method to change a unique order of integration. For instance, Engle & Granger, (1987) and
the frequency of the data by converting it into quarterly. This is a well- Johansen & Juselius, (1990) can only be applied provided that the series
established approach of changing the frequency of data by using is integrated of order 1. In addition, both Engle & Granger, (1987) and
Econometric views software (EViews).2 This method has the potential to Johansen & Juselius, (1990) ignore the existence of SBs that exists in the
lessen fluctuation and noise by expanding the span of the series, which time series. If ignored, these SBs can provide biased and inaccurate
further leverages the long-term patterns and reduces short-term swings. conclusions regarding the existence of a long-run relationship between
the variables. This was later resolved by introducing cointegration
techniques with SBs including Gregory & Hansen, (1996), Hatemi-j,
2 (2008), and Maki, (2012), which can capture sharp breaks with the in-
Further details on the quadratic match method can be viewed at htt
ps://www.eviews.com/illustrated/EViews%20Illustrated.pdf. clusion of dummy variables. Additionally, dummy variables can be

6
A. Ali et al. Innovation and Green Development 4 (2025) 100223

included by knowing the break dates in advance. However, these coin- the estimated F-statistic value lies higher than the upper bounds critical
tegration techniques also ignore the role of smooth structural breaks that values (UBCVs), this implies the existence of a long-run relation among
arise in the series. To address these limitations, this study applies the the variables of the study by rejecting H0 that implies the absence of
Fourier ARDL that includes a Fourier function, which can investigate the cointegration. However, if the F-statistic values fall lower than the lower
long-run relationship in a series without any prior information on the bounds critical values (LBCVs), this indicates the absence of any long-run
breaks, number of breaks and inclusion of dummy variables. This further relationship among the variables. The results are inconclusive provided
allows us to precisely investigate the long-run relationship while ac- that the estimated F-statistics is in between the UBCVs and LBCVs.
counting for any SBs without having prior information about the breaks
by including the Fourier function that considers multiple endogenous 3.1.4. Long-run elasticity
structural changes, such as in Banerjee et al., (2017), Tsong et al., (2016) The long-run elasticity is computed using the ARDL framework.
and Yilanci et al., (2019). Although the ARDL model has the characteristic of identifying both the
In his study, Banerjee et al., (2017) modified the cointegration test long-run and short-run simultaneously, this study is only restricted to the
equation as stated in Banerjee et al., (1998) by including the Fourier long run and the results are reported based on the long-run model under
function that allows structural changes to be captured, as shown using the ARDL framework using Eq. (1) and Eq. (2). Additionally, to ensure
the following FADL model. the robustness of the estimations obtained from the ARDL, this study
further applies the DOLS estimator as recommended by Stock and Watson
Δz1t ¼ dðtÞ þ δ1 z1;t1 þ γ ’ z2;t1 þ αΔz2t þ εt (4) (1993), which accounts for serial correlation and endogeneity. The aim
of checking the robustness is to validate the results obtained from the
Since the deterministic term is shown by dðtÞ ARDL model.



2π kt 2π kt
dðtÞ ¼ βο þ ϕ1 sin þ ϕ1 cos (5) 3.1.5. Single fourier frequency Toda Yamamoto causality test
T T
The traditional Granger, (1969) causality and Toda & Yamamoto,
where T represents the time period of the variables, t represents the trend (1995) tests ignore the roles of structural breaks while considering the
term and K identifies the frequency, which is chosen based on the lowest interaction among the time series. Ignoring these structural breaks may
sum of squares. Further, the below equation of cointegration is used to cause biased results due to the loss of important information in the data
determine the validity of (δ1 ¼ 0), against H1 for possible existence of the generating process, which needs to be taken into account. To address this
long-run relationship. issue, Enders & Jones, (2016) recently introduced a nascent approach to
causality by introducing the Fourier function to vector auto regression
b
δ1 (VAR) that considers the potential for multiple smooth breaks. While
tADL ¼ (6) stationary variables are used under the framework of the VAR model to
seðb
δ1 Þ
investigate the causality, non-stationary variables should be used with
The estimated value obtained from the above equation is compared first difference in the VAR framework to identify the causal interaction.
with the critical values from Banerjee et al., (2017). b δ 1 and seðb
δ1Þ This causes the loss of potential information due to differencing of the
b
represent the estimator of OLS, while seð δ 1 Þ denotes the standard error. variables. This study followed Nazlioglu et al. (2016) by introducing the
Nevertheless, the limitation of the FARDL is that it overlooks the moment augmented lag VAR in the model with the inclusion of a Fourier function
of the residual of the errors that has a non-normal distribution. Further, that extends the VAR by including the variable with a maximum level of
based on Oh et al., (2020) and Lee et al., (2015), this information that can integration, which does not need the variable to be used at a difference
be used to improve the power of the tests. Based on the work of Banerjee level.
et al., (2017) and Im and Schmidt (2008), Yilanci et al., (2023) further


2π kt 2π kt
expanded the study by introducing the RALS test, which is more powerful yt ¼ α0 þ β1 yt1 þ … þ βpþdmax ytðpþdmaxÞ þ γ 1 sin þ γ 2 cos
T T
when the residuals are non-normal and has similar properties when the
residuals are normal. Moreover, RALS is an easy-to-use testing method- þ εt
ology that does not require a pre-specified function form (Yilanci et al., (8)
2023). According to Lee et al. (2015), under normal distribution of the


errors, the RALS-based tests are more efficient. The equation used to 2π kt 2π kt
xt ¼ α0 þ α1 yt1 þ … þ αpþdmax ytðpþdmaxÞ þ γ 1 sin þ γ 2 cos
estimate the RALS-FARDL is given below: T T


 þ εt
2π kt 2π kt
ΔY1t ¼ βο þ ϕ1 sin þ ϕ2 cos þ δ1 y1;t1 þ γ ’ Ƴ2;t1 þ αΔY2t (9)
T T
þω
btγ (7) in the above equations, dmax represents the optimal lag length in the
VAR using the lag criterions. The integration order in this study is
Thus, in the above equation, the RALS-FARDL can be computed using the determined using the FADF and FGLS unit root tests. The optimal fre-
ordinary least square (OLS) method by estimating the test statistics. quency is chosen based on the lower SSR values. The null hypothesis of
no causality is tested against the alternative hypothesis and compared
3.1.3. ARDL bounds test with the critical values generated using bootstrap simulations.
The robustness of the RALS-FARDL is checked using the auto
regressive distributed lag (ARDL) model. Since the RALS-FARDL can 4. Results and discussion
accommodate only 4 regressors, it is important to apply the ARDL Bounds
test to determine the cointegration among the variables. The Bounds test Before proceeding with the identification of a long-run relationship
of cointegration as proposed by Pesaran et al., (2001) is preferred over among the variables, it is important to investigate the integration order of
other methods since it does not need the pre assumptions of the inte- the series. Since the cointegration techniques require the variables to
gration order to be specified. However, it needs to be ensured that the have a unique order of integration, this study utilizes the Fourier ADF
none of the variables is I(2). In this test, the joined F-statistics of the (FADF) and Fourier GLS (FGLS) unit root tests as proposed by Enders &
lagged value is tested and compared with the lower bounds critical values Lee, (2012) and Rodrigues et al., (2012) to predict the integration order.
and upper bounds critical values, as proposed by Pesaran et al., (2001). If As discussed earlier, these unit root test are chosen based on their ability

7
A. Ali et al. Innovation and Green Development 4 (2025) 100223

to predict the integration order in the presence of breaks with no prior Table 4
information. The results for the FADF and FGLS unit root tests are shown Result of the bRALS cointegration test.
in Table 3. Equation Optimal Mi_AIC Fourier RALS- Rho
The unit root test results suggest that all the variables in the series are Frequency ARDL FARDL
non-stationary at level. This implies that the series contains a unit root Test Stat test
Stat.
problem at level. However, considering the first difference, the series
becomes stationary when viewing the results of the FADF test. Likewise, ln EFOPt ¼ α0 þ 2 8.7817 5.6033a 5.3660a 0.7187
the results of the Fourier ADF have been cross-checked using the FGLS. α1 ln HEPt þ
α2 ln RECOt þ
The FGLS unit root test results are also displayed in Table 2. The results α3 ln GDPTt þ
concur with the findings obtained from the Fourier ADF unit root test. α4 ln GFIN þ εt
This highlights that both unit root tests confirm the unique order of
Note.
integration of the series, which is one of the mandatory requirements a
Represents significance level at 1%. MI_AIC minimum Akaike information
before proceeding towards the implementation of the cointegration criterion. RALS stands for “Residual augmented least squares cointegration”. AIC
technique. This study applied the newly developed residual augmented represents the Akaike information criterion, Fourier ADL means Fourier Autor-
least square FARDL (RALS-FARDL) to Equation (1). The results of the egressive distributed lag model test, RALS-FARDL Residual augmented least
fractional RALS-FARDL are shown in Table 4. squares Fourier Autoregressive distributed lag model test. Please refer to Table 2
The results confirm that both the FADL test statistics and RALS-FADL for variables' abbreviations.
b
test statistics are higher than the critical values, implying the existence of Four regressors can be accommodated by the RALS-FARDL. Since, the
cointegration using Eq. (1) of this study. This further suggests that number of regressors in Eq (2) including the interaction term is 5, this study
ecological footprint, health expenditure, renewable energy consumption, further applies the ARDL bounds test to confirm the evidence of cointegration
economic growth and green finance are in a long-run relationship. The among the variables.
ARDL bounds test has been carried out for two reasons using both Eq. (1)
and Eq. (2). Firstly, the RALS-FARDL can be applied to a maximum of
four regressors. As a total of five regressors are used in Eq. (2), this study the hospitals, especially patients diagnosed with asthmatic and breathing
further applies the ARDL bounds test to Eq. (1) and Eq. (2). The results of issues, cardiac issues as well as water pollutant diseases. Moreover, due
the ARDL bounds test are shown in Table 5. to improved technologies, better health practices and sustainable pro-
Table 5 shows the results of the cointegration model including both jects focussed on controlling environmental pollution would boost the
with and without interaction variables. The Bounds test further displays health index of Pakistani nationals. In addition, Pakistan is still struggling
the upper bounds critical values (UBCVS) and lower bounds critical to adopt green energy usage by considering environmentally-friendly
values (LBCVS) at various levels of significance. The Bounds value energy sources like renewable energy sources such wind and hydro en-
(5.1250) for the model with no interaction term and the bounds value ergy etc. The government, given its resources, is trying to provide a green
(28.5018) with interaction term provides evidence of a strong long-run and clean environment that has better implications for human health.
relationship. This further implies that evidence of cointegration has These findings of our study are in concordance with the studies of Yang
been confirmed in Eq. (1). and Eq. (2). As the cointegration model can et al. (2021) and Pervaiz et al. (2021), who concluded that health
only identify the long-run relationship but does not show the impact of expenditure positively effects environmental degradation. Additionally,
the regressors on the regress and, this study investigates the long-run renewable energy consumption has a negative and statistically signifi-
elasticity using the framework of the ARDL model. The results of the cant effect on ecological footprint. This suggests that a 1% rise in the use
long-run elasticity under the ARDL framework can be seen in Table 6. of renewable energy consumption causes environmental degradation to
From Tables 6 and it can be seen that health expenditures have a decrease by 1.7084%. This implies that the use of renewable energy
positive and statistically significant effect on ecological footprint. This provides a healthy and clean atmosphere that can play a pivotal role in
further indicates that health expenditures rise due to increased envi- improving human health. Further, this also leverages the production
ronmental pollution. Since Pakistan is an emerging country and it has sector of a country by enhancing production efficiency with low carbon
been observed that most citizens have diseases that are directly or indi- emissions. Moreover, the use of renewable energy sources in enhancing
rectly connected to environmental pollution, this puts more pressure on environmental quality improves the life expectancy of individuals. These
findings of our study are in line with the findings of Saidi & Omri, (2020),

Table 3
Table 5
Fourier ADF and Fourier GLS unit root tests.
Bounds test for Cointegration.
Variables. ADF Stat Lag Frequency ADF Stat Lag Frequency
Without interaction With interaction
At Level
F-Statistics 5.1250* 28.5018*
ln EFOP 2.514 0 2 2.149 0 2
Bounds Valuel
ln HEP 1.254 2 0 1.204 0 2
ln RECO 1.593 0 3 3.325 1 2 K 4 5
ln GDPT 0.059 0 2 1.124 0 2 Signif. Level I (0) I (1) I (0) I (1)
ln GFIN 2.296 0 3 3.416 1 1 Critical values without interaction Critical values without interaction
ln GFINHEP 3.439 1 3 2.225 0 3 model model
At 1st Difference
Dln EFOP 4.121* 0 2 5.122* 0 2 10% 2.45 3.52 2.26 3.35
Dln HEP 4.264** 2 0 4.212** 0 2 5% 2.86 4.01 2.62 3.79
Dln RECO 4.800* 0 1 4.898** 0 2 2.5% 3.25 4.49 2.96 4.18
Dln GDPT 3.993** 2 0 3.455*** 2 0 1% 3.74 5.06 3.41 4.68
Dln GFIN 6.274* 0 2 6.978* 0 3 Note: * and ** represent the significance level at 1% and 5%, respectively.
Dln 6.056* 1 3 6.780* 0 3
Without interaction refers to the model identified in Equation (1). With inter-
GFINHEP
action refers to the estimated model using Equation (2). The critical values for
Note: * and ** show significance at 1% and 5%, respectively. FADF and FGLS both the models have been shown in Table. K represents the number of the in-
represent the Fourier Augmented Dickey Fuller Test and Fourier Generalised dependent variables. The decision of cointegration is based on the F-Bounds (F-
Least Square Test. ADF stat denotes the Augmented Dickey Fuller statistics. statistics values) by comparing it with I(0) and I(1). Please refer to Table 2 for
Please refer to Table 2 for variables' abbreviations. variables' abbreviations.

8
A. Ali et al. Innovation and Green Development 4 (2025) 100223

Table 6 environmentally-friendly technology, which has led to a decrease in

ARDL long-term results Dependent Variable: ln EOF. health expenditure and lessened the ecological footprint.
Model 1 using Eq. (1) without Model 2 using Eq. (2) with Moreover, this study also uses the robustness of the ARDL model long-
interaction interaction run results by applying the dynamic least square (DOLS), as suggested by
Variable Coefficients T-statistics Coefficients T-statistics Stock and Watson (1993). The DOLS estimator controls the endogeneity
(Standard (Standard problem, which further validates the long-run results. The results of the
Error) Error) DOLS estimator are shown in Table 7. From the results, it can be seen that
ln HEP 0.0905* 2.3169 2.6709 1.7018 the DOLS estimator results reinforce the estimations of the ARDL model
(0.0390) (1.5694)
ln RECO 1.7084* 8.6185 3.0651 5.2097
and confirm their signs and statistical significance. This further high-
(0.1251) (0.5833) lights that our estimations are robust and can be used for further policy
ln GDPT 0.5624* 6.3913 1.4763 1.1862 implications.
(0.0880) (1.2445) Further, it is important to identify the diagnostic test that will be used
ln GFIN 0.0018* 1.7031 0.6590* 1.7022
to evaluate the validity of the models as identified in Eq. (1) and Eq. (2).
(0.0011) (0.3871)
ln GFIN*HEP – – 0.6618*** 1.7552 This includes the serial correlation test, heteroscedasticity, and model
(0.3770) stability tests. The results of the diagnostic tests are shown in Table 8.
R2 0.983 0.999 The diagnostic test has been performed for both the models. It has
Adjusted R2 0.974 0.996 been observed that both models are free from serial correlation and
Mean dependent 0.066 0.0659
var
heteroscedasticity issues. Additionally, the model stability has been
Standard 0.0127 0.0125 analysed using the Ramsey reset test and CUSUM test. Both tests iden-
deviation S.D tified that the models are stable. This additionally verifies the robustness
dependent var of our estimated models as identified in Eq. (1) and Eq. (2).
F-Statistics 107.7389 (0.000) 341.0375 (0.000)
Finally, the cointegration and long-run elasticity of our models
Durbin Watson 1.89 2.73
Statistics identify the long-relation and its impact in the long-run, respectively.
However, it does not identify the causal interaction among the variables.
Note: The significance level is shown by *** 10% and *1%. Please refer to Table 2
Therefore, it is important to add in the causal interactions among the
for variables abbreviations. The () shows the standard error.
variables. Moreover, the conventional Granger causality is biased in
identifying the causal interactions for series that have structural breaks.
who identified a negative relationship between renewable energy con- Therefore, this study applies the single Fourier frequency Toda Yama-
sumption and carbon emissions in 5 out of 15 selected countries that have moto (SFFTY) causality as recommended by Nazlioglu et al. (2019),
increased reliance on the use of renewable energy sources. Further, our which identifies the causality while accounting for structural breaks
study findings are also in concordance with the study of Triki et al. using the codes of Nazlioglu, S (2021). The results of the causality are
(2023) for Saudi Arabia, who identified a negative nexus between shown in Table 9.
renewable energy and ecological footprint. Moreover, economic growth From Tables 9 and it can be seen that there is a significant uni-
has a negative and significant effect on ecological footprint. This means directional causality running from green finance to ecological foot-
that a 1% rise in economic growth lessens the ecological footprint by print. This indicates that more investment needs be leveraged by the
0.5624%. This further suggests that the government of Pakistan is using government to finance the renewable energy items that can lessen
quality materials for production, which lessens environmental pollution. environmental pollution. Further, in order to promote cheap and green
This also identifies that the developments in Pakistan are not at the cost energy, it is important that these items/appliances must be provided at
of environment degradation. This implies that the government is effi- low cost. This act will encourage the use of renewable energy items that
ciently considering its green and clean practices to ensure sustainable can produce a green and cheap energy source. Moreover, tax exemptions
development. These findings of our study concur with those obtained by
Khan et al. (2022), confirming the negative effect of GDP on environ-
mental pollution in the short run; however, the effect is statistically
Table 7
insignificant. Moreover, green finance has a negative and statistically Dynamic Least Square (DOLS) Robust Results Dependent Variables: ln EOF.
significant effect on ecological footprint. This indicates that significant
Model 1 using Eq. (1) without Model 2 using Eq. (2) with
investment in green financing lessens the ecological footprint by
interaction interaction
0.0018%. The role of green financing cannot be ignored in the existing
context as it is deemed to be necessary for enhancing environmental Variables Coefficients T-stat Coefficients T-stat
(Standard (Standard
quality. The results for economic growth, green finance and renewable Error) Error)
energy all reinforce each other. This suggests that the flow of funds for ln HEP 0.2044* 10.3855 1.9388 1.7041
the purpose of ensuring green finance is important to sustain green and (0.0196) (1.1377)
clean developments. This initiative at the early stages of the imple- ln RECO 1.3962* 39.9424 0.3466* 2.0850
(0.0349) (0.1943)
mentation of green financing ensures superior outcomes and that the
ln GDPT 0.9143* 21.4698 0.6612 1.1577
government of Pakistan gives due consideration to the adoption and (0.0425) (0.5710)
promotion of green and clean energy. These findings of our study align ln GFIN 0.0010* 2.7413 0.4668* 2.1144
with those of Li et al. (2022) Zhang and Chen (2023) and Khan et al. (0.0003) (0.2207)
(2022). Further, in the case of the interaction model, this study in- ln GFIN*HEP – – 0.4052* 2.0850
(0.1943)
vestigates the interaction of green finance and health expenditure to 2
R (R-square) 0.784 0.899
jointly investigate the effect on ecological footprint. The results for the Adj R2 (Adjusted 0.773 0.612
interaction term are shown in Table 6. According to the table, the value of R Square)
the interaction term (0.6618) is negative and statistically significant. Mean dependent 0.0653 0.0655
variable
This means that green financing negatively and significantly moderates
Standard 0.0123 0.0123
the nexus between health expenditures and ecological footprint. This is deviation of
one of the main and novel contributions of our study, which to our dependent var
knowledge no other study has investigated so far. Green finance has
Note: The significance level for 1%. is shown by *. Please refer to Table 2 for
replaced the old and obsolete technology with cost effective and variables' abbreviations. The () shows the standard error.

9
A. Ali et al. Innovation and Green Development 4 (2025) 100223

Table 8 Table 9
Diagnostic tests of the ARDL Long-run model. Single fourier-frequency toda and Yamamoto causality test.
Statistical Test Value for Model 1 Value for Model 1 Direction Wald Asymmetric Bootstrap Lags Frequency
using Eq. (1). using Eq. (2). P-value P-Value

Serial Correlation F-statistics 1.0594 (0.3553) 3.3295 (0.0868) lnEFOP 6¼> lnHEP 1.266 0.973 0.971 6 1
test (Prob. F) lnHEP 6¼>lnEFOP 2.110 0.909 0.896 6 1
Heteroscedasticity 0.6879 (0.8414) 0.6209 (0.9075) lnEFOP6¼>lnRECO 2.043 0.916 0.910 6 1
Test lnRECO¼>lnEFOP 0.838 0.991 0.990 6 1
Ramsey reset Test Stable 0.0262 (0.8721) 2.5902 (0.1271) lnEFOP¼>lnGDPT 9.664 0.140 0.155 6 1
Model Stability CUSUM Stable Stable lnGDPT¼>lnEFOP 8.435 0.208 0.231 6 1
CUSUMSQ Stable Stable lnEFOP 6¼>lnGFIN 1.868 0.931 0.926 6 1
lnGFIN6¼>lnEFOP 15.082 0.020 0.072 6 1
Note: * and ** show significance levels at 1% and 5%, respectively. Where the lnEFOP6¼>ln 1.266 0.974 0.968 6 1
Prob. F shows the corresponding probability of the F statistics value. Please refer GFIN*HEP
to Table 2 for variables abbreviations. The () shows the corresponding proba- ln GFIN*HEP 6.682 0.351 0.349 6 1
bility values. 6¼>lnEFOP

Note: 6¼> shows no causality. ¼> shows unidirectional causality. Please refer to
must be provided for these items to promote the use of renewable energy Table 2 for variables abbreviations.
appliances. This will provide an effective way of encouraging the use of
renewable energy and thus developing the energy sector of Pakistan. The water energy and solar energy etc). In addition, green finance is associ-
causal findings of this study are in contradiction to the findings of Zhang ated with a reduction in the usage of fossil fuels, thus lessening CO2
and Chen (2023), who found no causality between ecological footprint emissions and ultimately reducing environmental degradation. Conse-
and green finance. quently, focussing on these strategies and initiatives could reduce the
dependence on oil and coal, which are considered as the main sources of
5. Conclusion and policy implications pollution. In the same manner, investments in energy-efficient technol-
ogies can lower energy consumption, thus reducing carbon emissions,
This study investigates the nexus between ecological footprint, green addressing water scarcity and improving air quality in Pakistan.
finance, health expenditures, economic growth, and renewable energy in This suggests that, considering the increased environmental chal-
Pakistan using quarterly data from 2000 to 2020. The study applied the lenges in Pakistan, targeted investments in innovative/green technolo-
novel unit root test that has the advantage of determining the integration gies and sustainable projects are critical for reducing the country's
order without any prior knowledge regarding structural breaks. The ecological footprint. This reduction in environmental degradation will
study identified the unique order of integration. Further, the study translate into lower future health expenditures because less resources
applied the RALS-FARDL to determine the long-run nexus among the will be needed to overcome environmentally driven health issues.
variables. This implies that ecological footprint, green finance, health Additionally, green finance bolsters sustainable practices that can reduce
expenditure, economic growth, and renewable energy are in a long-run the environmental impact of new technologies, hence lowering the
nexus. Additionally, the Bounds test further reinforces the findings ob- ecological footprint. Consequently, with higher investments in new and
tained from the RALS-FARDL test. The long-run elasticity has been sustainable technologies, there will be less ecological footprint, resulting
determined using the ARDL model. The long-run results suggest that in a decrease in environmental degradation. Similarly, the reduction in
renewable energy consumption, economic growth and green finance environmental degradation due to green finance will support a reduction
have a negative effect on ecological footprint. However, health expen- in health expenditures that are associated with environmental hazards
diture effects ecological footprint positively. In addition, green finance and environmental pollution such as pulmonary disorders, lung diseases,
negatively moderates the nexus between health expenditure and asthma, water borne diseases, and cardiovascular disorders, which are
ecological footprint. Finally, the causality results confirmed the unidi- very common among the Pakistani population. Hence, green finance
rectional causal nexus from green finance to ecological footprint. The improving environmental quality leads to lower health issues, and thus, a
current study presents significant implications for policymakers and reduction in health expenditures. Therefore, on the one hand, green
stakeholders. The synthesis of the envisaged variables provides valuable finance improves health conditions, and on the other hand, it also gen-
insights into the interplay of these factors as well as for sustainable erates savings for the government and individuals on the health side,
development policies in Pakistan. which can be re-invested in green financing and green technology.
Correspondingly, high health expenditures also reduce environ-
5.1. Significance of the findings mental health risks by improving healthcare facilities and infrastructure,
which in turn increases public health output and reinforces the cycle of
The current study demonstrates that increased green finance initia- sustainability. This fosters a positive effect benefiting both the environ-
tives are significantly associated with a decrease in ecological footprint. ment and public health. It is obvious that both green finance and health
Green finance, also called climate finance, can facilitate the design and expenditures reduce environmental degradation, and hence, ecological
implementation of environmentally sustainable policies and projects. footprint. Thus, the interaction of health expenditures and green finance
This is because Pakistan is facing increased environmental problems such develops a synergetic effect leading to reduced environmental degrada-
as water and air pollution, high levels of deforestation for different tion in Pakistan.
purposes (i.e., firewood, furniture, buildings, coal mining, and minerals Moreover, our study also highlights the critical role of renewable
mining etc.), and inefficient energy mechanisms, which all lead to energy in achieving the sustainability goals for emerging economies like
increased ecological footprint. Green financing is specifically articulated Pakistan. The greater use of renewable energy sources is associated with
for investments in such projects, which reduces these environmental lesser ecological footprint for sustainable development. This portrays the
problems by mitigating the adverse effects through sustainable technol- importance of a decrease in dependence on fossil fuels, leading to
ogies. Hence, green finance supports environmentally-friendly technol- reduced emissions and ecological footprint in Pakistan. Moreover,
ogies and projects. To overcome such critical issues in a timely manner in attempting to maintain the pace of economic growth in parallel with
Pakistan, green finance is a viable solution that can support the cessation balancing environmental sustainability is always challenging. This is
of deforestation, and provide support to sustainable forest and agricul- because economic growth can result in increased ecological footprint;
ture policies, as well as renewable energy projects (i.e., wind energy, however, in the current study, the positive relationship between

10
A. Ali et al. Innovation and Green Development 4 (2025) 100223

economic growth and ecological footprint is associated with the efficient on certain variables such as green finance. Another limitation is the data
utilization of resources and consumption patterns in Pakistan. availability at sector or regional levels, which can be more useful for in-
depth analysis. Moreover, the current study results cannot be generalised
5.2. Policy recommendations to developed economies or other emerging economies that have different
political structures or institutional settings. Additionally, the choice of
Based on the study findings, various policy implications are put forth proxies may capture certain but not all aspects. Moreover, other aspects
for stakeholders. could be covered that the current study is unable to consider. Therefore,
based on these limitations and other opportunities, future studies can
 Designing Policies: The government and policymakers should consider intellectual capital for fostering green innovation in mitigating
design, develop and implement policies that promote investments in the ecological footprint. Moreover, the use of institutional quality can
green finance by subsidizing renewable energy projects and other also play an important role in mitigating the ecological footprint.
initiatives such as supportive regulatory frameworks, and tax in- Therefore, considering institutional quality factors will further enhance
centives for environmentally-friendly technologies. It should be the body of knowledge. In addition, the role of fintech can also be a
ensured that these policies are market compatible with technology, worthy contribution in the context of this nexus.
market changes, and sustainability concerns. This step will attract and
encourage private sector investment, fostering innovations in green CRediT authorship contribution statement
technology.
 Monitoring and Evaluation: Policies concerning green finance also Adnan Ali: Writing – review & editing, Writing – original draft, Su-
need periodic evaluation to materialize the benefits to the population. pervision, Resources, Project administration, Methodology, Investiga-
Similarly, the policymakers are encouraged to leverage the findings of tion, Conceptualization. Faisal Faisal: Writing – review & editing,
the study in formulating pragmatic policies that promote green in- Writing – original draft, Validation, Supervision, Software, Resources,
vestments, support innovative technologies, endorse sustainable Project administration, Methodology, Investigation, Formal analysis,
development, and mitigate ecological footprint in general and Data curation, Conceptualization. Aliya Zhakanova Isiksal: Writing –
Pakistan in particular. review & editing, Writing – original draft, Visualization, Supervision,
 Industry and Community Engagement: In the current era, the role Resources, Methodology, Investigation, Conceptualization. Iman Sulai-
of community and industry engagement cannot be ignored. The man Amur AL Maktoumi: Writing – review & editing, Writing – original
government of Pakistan can involve industry leaders, experts, key draft.
stakeholders including local communities, and organizations that are
working on health and environment in the development of relevant
Declaration of competing interest
policies. This engagement will prove prudent to the practical goals
aimed at addressing the needs of several groups and achieving
The authors declare that they have no known competing financial
sustainability.
interests or personal relationships that could have appeared to influence
 Awareness Campaigns: It is necessary to devise policies and prac-
the work reported in this paper.
tices that focus on the awareness of green finance activities and their
benefits via outreach programs, educational campaigns, advertising,
Acknowledgements section
and media programs. This will help in gaining public support for the
government initiatives and create trust among investors, facilitating
This research did not receive any specific grant from funding agencies
the successful implementation of the policies.
in the public, commercial, or not-for-profit sectors.
 Training and Development: To effectively devise, evaluate, manage
and monitor the green finance initiatives, the government can invest
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