Can green finance mitigate Dutch disease? Evidence from China

This study investigates the mitigating effects of green finance on Dutch disease in China, using panel data from 30 provinces (excluding Tibet, Hong Kong, and Macau) from 2011–2021. Employing dynamic threshold effect models and mediation effect models, it identifies a resource curse phenomenon at the provincial level, indicative of Dutch disease, which negatively impacts economic growth. The research demonstrates that green finance plays a significant role in alleviating the Dutch disease effect, with its impact varying across different regions and conditions. Notably, areas like the Eastern regions, zones with weak natural resource endowments, financial reform pilot zones, and regions with lower levels of manufacturing development show stronger mitigation effects. The study also highlights the spending and resource transfer effects as key mechanisms through which the resource curse suppresses manufacturing by diminishing export competitiveness and transferring labor away from manufacturing, thereby hindering productivity improvements. Based on these findings, the study recommends enhancing resource management, strengthening green financial systems, focusing on heterogeneity effects, and leveraging green finance to limit the growth of resource-dependent industries, thus breaking the transmission mechanism of Dutch disease and its exacerbating effects on the resource curse.