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Internal mechanism analysis of the financial vanishing effect on green growth: Evidence from China

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  • Cao, Jianhong
  • Law, Siong Hook
  • Samad, Abdul Rahim Abdul
  • Mohamad, Wan Norhidayah W.

Abstract

Using the panel data of 30 provinces in China from 2011 to 2018, this study examines the nonlinear relationship between financial development and green growth, as well as its internal generation mechanism by employing the Ordinary Least Square (OLS) method, Two-stage Least Squares (TSLS) method, System Two-step Generalized method of moments (System Two-step GMM) and dynamic panel threshold model of Seo et al. (2019). The empirical results reveal that, firstly, the scale of financial institutions (FDS) significantly inhibits green growth (GG), while the scale of the stock market (STO) significantly promotes green growth (GG). Secondly, there is a nonlinear relationship between financial development and green growth. There is an inverted U-shaped nonlinear relationship between the scale of financial institutions (FDS) and green growth (GG). That means when the ratio of the comprehensive level of financial development (FDCI) to the comprehensive level of technological innovation (TICI) is lower than a certain threshold, the development scale of financial institutions (FDS) will significantly promote green growth (GG). However, the scale of the stock market (STO) and green growth (GG) show an opposite linear relationship. This study proves that the financial vanishing effect differs in different proportions of the comprehensive level of financial development (FDCI) and the comprehensive level of technological innovation (TICI). This study also analyzes the differences between the impacts of technological innovation (TI) and green technology innovation (GI) on the financial vanishing effect. In addition, compared with the underdeveloped western regions, the scale of financial institutions (FDS) in the more developed eastern and central regions has a stronger inhibitory effect on green growth. Compared with the economically developed eastern and central regions, the scale of the stock market (STO) in the economically underdeveloped western regions has a stronger role in promoting green growth. Finally, financial development can affect green growth by affecting capital misallocation (ABK) and energy intensity (EDS). This study provides new policy suggestions for the country to improve the financial system reform and optimize the financial market structure. This study also offers a reference for policy makers to formulate financial risk early warning mechanisms and avoid the financial vanishing effects. In short, this study provides new evidence for the green development of China's economy.

Suggested Citation

  • Cao, Jianhong & Law, Siong Hook & Samad, Abdul Rahim Abdul & Mohamad, Wan Norhidayah W., 2023. "Internal mechanism analysis of the financial vanishing effect on green growth: Evidence from China," Energy Economics, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:eneeco:v:120:y:2023:i:c:s0140988323000774
    DOI: 10.1016/j.eneco.2023.106579
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    Cited by:

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    2. Zhu, Yi & Lin, Yangyi & Tan, Yanyu & Liu, Bin & Wang, Hao, 2024. "The potential nexus between fintech and energy consumption: A new perspective on natural resource consumption," Resources Policy, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    Green growth; Financial development; Financial vanishing effect; Dynamic threshold regression;
    All these keywords.

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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