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Does the green financial policy promote growth quality? Evidence from China

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  • Wei Liu
  • Pujuan Li
  • Xiaoqi Huang

Abstract

The deterioration of the pollution problem has heightened the focus on growth quality. However, the relationship between green financial policies and growth quality remains underexplored. This study aims to investigate the causal relationship between China’s green credit policy and growth quality, measured through improvements in urban green total factor productivity (GTFP). To achieve this, we employ a Difference-in-Differences (DID) model, treating the implementation of China’s green credit policy in 2007 as an almost ideal quasi-natural experiment. The empirical findings reveal that (1) the green credit policy has contributed to the improvement of urban GTFP, (2) this positive effect is more pronounced in cities with higher fixed asset investment ratio, abundant educational resources and advanced financial development and (3) the promoting effect is primarily driven by three mechanisms: the upgrading of industrial structure, the driving force of innovations and the increase in environmental protection investment. Overall, this study reveals the micro mechanism behind the positive influence of green financial policies on growth quality. Accordingly, we provide policy-makers of developing countries with valuable insights into tailoring effective strategies for long-term economic development.

Suggested Citation

  • Wei Liu & Pujuan Li & Xiaoqi Huang, 2026. "Does the green financial policy promote growth quality? Evidence from China," Applied Economics, Taylor & Francis Journals, vol. 58(4), pages 645-660, January.
    • Handle: RePEc:taf:applec:v:58:y:2026:i:4:p:645-660
    DOI: 10.1080/00036846.2025.2455008
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