The impact of digital economic growth and financial expansion on CO2 mitigation strategies in leading emitting countries.

The top ten carbon-emitting countries contribute over 45% of global CO2 emissions, necessitating innovative approaches to achieve carbon neutrality and the Sustainable Development Goals (SDGs). This study examines how digital economy (DE) economic growth (EG) and financial expansion (FINE) influence CO2 emissions, focusing on their direct and indirect impacts across different emission levels. Using data from 1990 to 2021, the study applies the Method of Moments Quantile Regression (MM-QR) to capture the heterogeneous effects of DE and FINE across quantiles, complemented by Driscoll-Kraay (DK) regression for robustness. Key findings reveal that DE's direct impact on CO2 emissions intensifies in higher quantiles, with coefficients rising from 0.621 at quantile 8 to 1.178 at quantile 9. However, the interaction of DE with economic growth (EG) shows a mitigating effect, reducing emissions in higher quantiles (-0.082 at quantile 8 and - 0.105 at quantile 9). FINE consistently reduces emissions across all quantiles, with coefficients ranging from - 0.408 in lower quantiles to -0.350 in upper quantiles. Population density (PD) also mitigates environmental degradation, with its impact increasing in magnitude at higher quantiles (-0.163 at quantile 8 and - 0.171 at quantile 9). In contrast, EG directly exacerbates emissions, with stronger effects in lower quantiles (0.801 at quantile 1) that diminish at higher quantiles (0.242 at quantile 9). This study results contribute and underscore the dual role of digital economy (DE) in increasing emissions directly while mitigating them indirectly via economic growth, highlighting the need for targeted policies to harness digitalization and financial mechanisms for sustainable development.