Financial development, digitalization, and the trajectories of sustainable development

Financial development and digitalization are widely recognized as central drivers of modern economic transformation, yet their roles in long-term sustainability remain contested and fragmented in the literature. Existing studies have largely assessed their influences on either growth or emissions in isolation, leaving their broader impacts on sustainable development as well as their joint effects underexplored. Motivated by these knowledge deficiencies, this study examines influences of financial development and digitalization on economic growth, carbon emissions, material resource footprint, and sustainable development in a cross-national panel spanning several decades. In the presence of cross-sectional dependence, slope heterogeneity, and long-run cointegration, advanced estimators are used for long-run analysis. The results reveal that financial development enhances growth and sustainable development but raises environmental pressures, while digitalization fosters growth yet undermines environmental quality and sustainable development. Notably, digitalization simultaneously conditions the finance-growth and finance-sustainability nexus, weakening the extent to which financial development translates into both economic growth and sustainable development. By jointly analyzing finance and digitalization across several outcomes, this study provides insights into their roles in long-run sustainability trajectory, underscoring the need for policies that harness these forces for growth and sustainability while mitigating environmental costs.