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Green financing for ESG investments and wages in a sustainable economy

Author

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  • Beladi, Hamid
  • Chao, Chi-Chur
  • Trinh, Cong Tam
  • Ee, Mong Shan

Abstract

This paper investigates the impact of green financing for environmental, social, and governance (ESG) investments on business dynamism and wages within the economy. Green financing for emission reductions involves certain abatement costs, while the associated green financing can offset these cost increases. The effects on wage inequality and firm dynamics hinge on which effect predominates. Green financing for ESG investments can narrow the skilled-unskilled wage gap in the short run, but the reduction in wage inequality could be mitigated in the long run due to the firm-entry effect. Green financing for ESG investments yields benefits in reducing wage inequality and enhancing market competition within industries. Using three-stage least squares and system Generalized Method of Moments estimations, we verify the theoretical findings. Policy recommendations, including developing green finance through favorable loans, are offered to fund ESG investments that meet environmental and social standards to achieve a sustainable and equitable economy.

Suggested Citation

  • Beladi, Hamid & Chao, Chi-Chur & Trinh, Cong Tam & Ee, Mong Shan, 2025. "Green financing for ESG investments and wages in a sustainable economy," International Review of Financial Analysis, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:finana:v:106:y:2025:i:c:s1057521925006568
    DOI: 10.1016/j.irfa.2025.104569
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    Keywords

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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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