Has green finance facilitated China's low-carbon economic transition?

Abstract

The transformation of the traditional high-carbon economy to a low-carbon economy and the change in the economic development mode urgently require the transformation and development of traditional finance to green finance. This study examines the impact of green finance on the transition to a low-carbon economy in 30 Chinese provinces from 2001 to 2019 and further explores the role of low-carbon technological innovation in this facilitation process. We use the Global Malmquist- Luenberger index to measure low-carbon total factor productivity using gross regional product as the desired output, CO2 emissions as the undesired output, and capital stock, employment, and total energy consumption as input indicators to represent the low-carbon economic transition. We select seven indicators in four dimensions of green credit, green securities, green insurance, and green investment to construct a comprehensive green finance evaluation system, and then apply the entropy value method to calculate green finance indicators. The number of patents granted for low-carbon innovation is used to measure low-carbon technology innovation. Foreign direct investment, industrialization level, economic development level, and urbanization level are selected as control variables. Through panel data model, mediating effect model and 2SLS, we find that green finance can significantly contribute to the transformation of low-carbon economy, but this contribution decreases with the intervention of low-carbon technology innovation. The implications of our empirical results can help China to improve the development of green finance and thus promote the transformation and upgrading of a low-carbon economy.

Keywords: Green finance; Low carbon economy; Low carbon technology.