Financial footsteps and carbon footprints: Analyzing the relationship between financial development and carbon inequality in China.

Achieving fair climate action requires addressing carbon disparity, but little is known about its causes, especially the role played by financial systems. According to this study, financial development could be a crucial tool for reducing this inequality. This study examines the effect of financial development on carbon inequality by considering CO2 emissions, foreign direct investment, gross domestic product, and trade openness as additional determinants in carbon inequality function by utilizing time-sequential data of China for the period 1980 to 2022. We employed the Bootstrap Auto Regressive Distributed Lag (ARDL) bounds testing approach to examine the existence of cointegration among the variables. Our findings indicate that financial development lowers carbon inequality. Trade openness and foreign direct investment have a negative effect on carbon inequality. Contrarily, CO2 emissions and gross domestic product enhance carbon inequality. Given the negative impact of trade openness, foreign direct investment, and financial development on carbon inequality, policymakers should focus on fostering inclusive economic systems, promoting sustainable foreign investment, and enhancing international and domestic regional trade agreements to sustain the negative impact of these determinants on carbon inequality. The positive impact of CO2 emissions and gross domestic product on carbon inequality requires the establishment of economic growth policies that could mitigate the emission inequalities in the country.