Revisiting the Green Growth Hypothesis: A Multi-Model Analysis of Climate Finance and Economic Growth in Emerging Economies

The paper examines the macroeconomic and environmental outcomes associated with green financing across 22 emerging markets and developing economies from 2002 to 2024. Driven by the increased policy focus on climate finance as a two-fold tool of sustainability and development, the analysis assesses whether green financing is an economic growth driver. A multi-model structure is used (fixed effects, non-linear (quadratic), threshold, dynamic (lagged), and first-difference specifications) to achieve strength and eliminate model-specific bias. The findings show that green financing exhibits a weak positive association with economic growth in baseline and regime specifications. Still, this relationship is not robust across dynamic and first-difference models. Moreover, there is no indication of non-linearity or a threshold effect (a Green Laffer Curve). Patterns that indicate a weak positive relationship are cross-sectional and not robust to panel estimation; they are therefore aggregation-biased. Conversely, green financing has a low negative correlation with CO 2 emissions, indicating partial environmental efficiency. The results show that climate finance is limited in scale and inefficiently structured, which limits its macroeconomic impact. In general, the paper concludes that green finance, although environmentally applicable, is not sufficient as it currently stands to spur economic growth in emerging economies.