Dynamic Impact of Governance, Financial Development, and Green Innovation on CO₂ Emissions in G7 Countries: Evidence from Non-Parametric Modelling

Abstract

This paper investigates the dynamic impact of governance, financial development, and green innovation on CO₂ emissions in the G7 countries over the period 1995–2023. We employ both parametric and non-parametric panel data approaches to capture the complex and potentially time-varying relationships among environmental governance, financial development, material footprint, economic growth, green investments, natural resource rents, and technological innovation. Our non-parametric results reveal significant heterogeneity and temporal variation in the effects of these factors on CO₂ emissions, with governance and green innovation exhibiting stronger negative impacts in recent years, while financial development shows mixed effects depending on the model specification. The parametric analysis confirms these findings and provides robust evidence on the role of economic and environmental policies in mitigating carbon emissions. The results underscore the importance of tailored policy interventions that consider the evolving influence of governance, financial, and technological factors on environmental sustainability.