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Is green finance really “green”? Examining the long-run relationship between green finance, renewable energy and environmental performance in developing countries

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  • Bakry, Walid
  • Mallik, Girijasankar
  • Nghiem, Xuan-Hoa
  • Sinha, Avik
  • Vo, Xuan Vinh

Abstract

This paper examines the impact of green finance on environmental performance in developing countries. Using panel cointegration analysis and panel vector error correction model (VECM) to a sample of 76 developing economies from 2010 to 2019, this study confirms that carbon emissions (CO2) is cointegrated with green finance, real gross domestic product, urbanization, and renewable energy under different specifications and therefore we estimate the long-run relationships among these variables. Specifically, both green finance and renewable energy are found to exert significant and inhibitory effects on CO2 emissions, reaffirming the necessity to promote green finance and renewable energy. Results from the paper also document the existence of the Environmental Kuznets Curve and the increasing effects of urbanization on CO2 emissions. Several policy implications and recommendations are drawn from this study.

Suggested Citation

  • Bakry, Walid & Mallik, Girijasankar & Nghiem, Xuan-Hoa & Sinha, Avik & Vo, Xuan Vinh, 2023. "Is green finance really “green”? Examining the long-run relationship between green finance, renewable energy and environmental performance in developing countries," Renewable Energy, Elsevier, vol. 208(C), pages 341-355.
    • Handle: RePEc:eee:renene:v:208:y:2023:i:c:p:341-355
    DOI: 10.1016/j.renene.2023.03.020
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    3. Bingfeng Meng & Zhihao Hao, 2024. "Role of green finance and higher education in fostering the sustainability and energy transition practices," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-8, December.
    4. Uche, Emmanuel & Ngepah, Nicholas & Cifuentes-Faura, Javier, 2023. "Upholding the green agenda of COP27 through publicly funded R&D on energy efficiencies, renewables, nuclear and power storage technologies," Technology in Society, Elsevier, vol. 75(C).
    5. Oana-Daniela Lupoae & Riana Iren Radu & Alexandru Capatina & Violeta Maria Isai & Nicoleta Bărbuță-Mișu, 2023. "Exploring Precursors of Renewable Energy Portfolio Diversification Using TPB," Energies, MDPI, vol. 16(18), pages 1-19, September.
    6. Rui Dong & Shengnan Wang & Muhammad Awais Baloch, 2024. "Do green finance and green innovation foster environmental sustainability in China? Evidence from a quantile autoregressive-distributed lag model," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(10), pages 25995-26017, October.
    7. Maldonado-Guzmán, Gonzalo & Pinzón-Castro, Sandra Yesenia & Juárez-del Toro, Raymundo, 2023. "Lean manufacturing is the financial performance and sustainable finances problems solution?," TEC Empresarial, School of Business, Costa Rica Institute of Technology (ITCR), vol. 17(3), pages 1-19.
    8. Safi, Adnan & Haseeb, Muhammad & Islam, Madeeha & Umar, Muhammad, 2023. "Can sustainable resource management overcome geopolitical risk?," Resources Policy, Elsevier, vol. 87(PB).
    9. Ma, Lina & Iqbal, Najaf & Bouri, Elie & Zhang, Yang, 2023. "How good is green finance for green innovation? Evidence from the Chinese high-carbon sector," Resources Policy, Elsevier, vol. 85(PB).
    10. Xiu Jie Deng & Man Qing Yuan & Cai Yi Luo, 2024. "Corporate digital transformation, market competition, and the environmental performance—Microevidence from Chinese manufacturing," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3279-3298, May.
    11. Uche, Emmanuel & Das, Narasingha & Ngepah, Nicholas, 2024. "Green environments reimagined through the lens of green finance, green innovations, green taxation, and green energies. Wavelet quantile correlation and rolling window-based quantile causality perspec," Renewable Energy, Elsevier, vol. 228(C).
    12. Safi, Adnan & Kchouri, Bilal & Elgammal, Walid & Nicolas, Melhim Khoury & Umar, Muhammad, 2024. "Bridging the green gap: Do green finance and digital transformation influence sustainable development?," Energy Economics, Elsevier, vol. 134(C).
    13. Biao Geng & Daoning Wu & Chengshu Zhang & Wenbao Xie & Muhammad Aamir Mahmood & Qamar Ali, 2024. "How Can the Blue Economy Contribute to Inclusive Growth and Ecosystem Resources in Asia? A Comparative Analysis," Sustainability, MDPI, vol. 16(1), pages 1-22, January.
    14. Ciucu Durnoi Alexandra-Nicoleta & Delcea Camelia, 2023. "Greening the Future: Europe's Renewable Energy Landscape in 2030," Management & Marketing, Sciendo, vol. 18(s1), pages 411-426, December.

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    More about this item

    Keywords

    Green finance; Carbon emission; Renewable energy; VECM; Cointegration;
    All these keywords.

    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • G00 - Financial Economics - - General - - - General
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • 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

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