Exploring the Economic Impact of Green Financing: A Case Study of Bangladesh’s Loan Disbursement Initiatives

Bangladesh has increasingly adopted green financing initiatives, yet their impact on economic growth remains unclear. Despite regulatory efforts, the effectiveness of green financing in influencing GDP growth requires further exploration. This study investigates the relationship between green finance loan disbursement and economic performance by analyzing secondary data from 2019 to 2023. The study focuses on loan disbursements from four types of financial institutions: state-owned commercial banks, specialized banks, private commercial banks, and financial institutions. GDP data is sourced from the Bangladesh Bureau of Statistics. The research employs panel data analysis using the random effect model to determine the relationship between green financing and GDP growth. Various statistical tests, including the Breusch-Pagan/Cook-Weisberg test for heteroskedasticity and the Breusch-Godfrey LM test for autocorrelation, were conducted to validate the findings. The results indicate that green financing initiatives, in general, have an insignificant impact on economic growth. However, among the financing initiatives, green agriculture exhibits a significant positive impact on GDP, whereas other sectors, such as renewable energy and CMSME, show either weak or negative relationships. The findings highlight the complexity of linking green financing to economic growth and emphasize the need for targeted interventions to enhance its effectiveness. The study recommends increasing investment in green agriculture, reassessing financing strategies for ineffective sectors, and adopting an integrated approach that combines different green financing initiatives to maximize economic benefits. Future research should address multicollinearity among independent variables, incorporate long-term trend analysis, and expand the scope beyond financial institutions to capture the full impact of green financing on economic development.