Abstract: Europe has entered an era of environmental consciousness that is accelerating the transition toward more sustainable economic and financial growth. This study investigates the effects of industrial innovation (INV) on production-based emissions (PBE), Gross Domestic Product (GDP), and financial development (FD) in European countries between 1994 to 2021. The study employed CIPS and CADF tests to assess unit roots, while second-generation tests were used to evaluate cross-sectional dependence. The Westerlund (2007) test assesses panel cointegration. The pooled mean grouped (PMG)-ARDL estimates short and long-run parameters. Additionally, the D-H (2012) causality test examines varied causal links while the System Generalized Method of Moment Regression (SGMM) is used for robustness check. The research affirms that INV significantly influences all models, yielding consistent outcomes in both short and long run. The findings show innovative technologies fuelled with renewable energy play critical roles in reducing PBE by 14.6% and 67.1%, respectively, in the long run and increasing GDP by 10.9% and FD by 14.2%, highlighting the significance of INV for sustainable development. Additionally, individual model analyses emphasize the critical role of environmental policy, research and development, renewable energy use, and the challenges posed by energy consumption and economic globalization in shaping emissions. The findings support strategic policies encouraging innovation-driven methods, creating a harmonic alignment of economic growth and environmental preservation in Europe.

Keywords: Industrial Innovation; Production-Based Emissions; Gross Domestic Product; Financial Development; Environmental Preservation; Europe

JEL codes: Q55, O33, O44, O16

DOI: ...