Does financing SMEs guarantee inclusive growth and environmental sustainability in the European union?

ABSTRACT

At the heart of the EU cohesion policy and the European Green deal lies the underlying sub-goals not limited to; financing the transition, promoting economic well-being of regions, take everyone along, achieving climate neutrality and a zero pollution Europe which the small and medium enterprises positions as the perfect conduit to achieve the aforementioned sub-goals in the case of Europe. Our study seeks to investigate if credit flowing from private sector units and government-owned enterprises to SMEs guarantees inclusive growth and environmental sustainability in EU-27 member states using data collected from OECD Stat. Database and the World Bank database from 2006 to 2019. Findings from the econometric analysis shows that SMEs activities is a significant and positive predictor of environmental pollution in the EU. In the case of inclusive growth countries cohort in the EU, both credit flowing from private sector funding institutions and government-owned enterprises to SMEs enhances a positive SME growth impact on environmental sustainability. In the case of non-inclusive growth countries cohort in the EU, credit flowing from private sector to SMEs enhances the positive impact of SME growth on environmental sustainability while credit flowing from government-owned enterprises to SMEs intensify the negative impact of SME growth on environmental sustainability.