Is green finance really “green”? Examining the long-run relationship between green finance, renewable energy and environmental performance in developing countries

Abstract

This paper examines the impact of green finance on environmental performance in developing countries. Using panel cointegration analysis and panel vector error correction model (VECM) to a sample of 76 developing economies from 2010 to 2019, this study confirms that carbon emissions (CO2) is cointegrated with green finance, real gross domestic product, urbanization, and renewable energy under different specifications and therefore we estimate the long-run relationships among these variables. Specifically, both green finance and renewable energy are found to exert significant and inhibitory effects on CO2 emissions, reaffirming the necessity to promote green finance and renewable energy. Results from the paper also document the existence of the Environmental Kuznets Curve and the increasing effects of urbanization on CO2 emissions. Several policy implications and recommendations are drawn from this study.