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Green finance and economic growth: Evidence from China's natural resource markets

Author

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  • Sun, Shipan
  • Guo, Yun
  • Tian, Caiying
  • Xu, Xia
  • Ghaffar, Abdul

Abstract

This study examines the relationship between green finance and economic growth in China's natural resource markets, analyzing how public and private capital mobilization affects sustainable development from 2003 to 2022. Using advanced econometric techniques including dynamic panel GMM estimation, fixed and random effects models, and panel cointegration analysis across 30 Chinese provinces, we investigate the efficiency of green finance in promoting sustainable resource management while controlling for endogeneity and addressing robustness concerns through comprehensive diagnostic testing. The empirical analysis reveals a statistically significant positive correlation between green finance initiatives and GDP growth, with every 1 % increase in green finance investment associated with a 0.45 percentage point increase in GDP growth. Key findings indicate that private investment demonstrates superior efficiency compared to public mechanisms, resource taxation policies (STAX) and environmental fiscal policies (EFP) positively influence growth outcomes, and policy complementarities generate synergistic effects exceeding individual contributions. The results demonstrate that green finance effects strengthen over time, with long-run impacts substantially exceeding short-term effects, while regional heterogeneity reveals differential effectiveness across provinces with varying institutional capacity. Policy implications suggest that integrated public-private partnerships in green finance, combined with coordinated multi-instrument approaches and region-specific implementation strategies, can effectively harmonize environmental objectives with economic growth goals, providing strategic guidance for policymakers seeking to accelerate China's transition toward a sustainable low-carbon economy while maintaining robust economic performance.

Suggested Citation

  • Sun, Shipan & Guo, Yun & Tian, Caiying & Xu, Xia & Ghaffar, Abdul, 2025. "Green finance and economic growth: Evidence from China's natural resource markets," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 2202-2222.
    • Handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:2202-2222
    DOI: 10.1016/j.eap.2025.07.043
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