Does Green Finance Promote Green Total Factor Productivity? Empirical Evidence from China

Abstract

Green economic growth is a major challenge for countries, as it requires achieving both ecological protection and economic development goals simultaneously. It can be expressed as the continuous growth of green total factor productivity (GTFP), which is the core indicator reflecting the simultaneous achievement of environmental and economic sustainability. This study provides an in-depth understanding of how green finance contributes to GTFP with data from 30 Chinese provinces between 2006 and 2021. The results reveal that green finance has a significant promotion effect on GTFP as well as a significant spatial spillover effect. By splitting GTFP into green technological progress and green efficiency improvement, green finance can improve the former but not the latter. Green finance can influence GTFP through the mechanisms of technological innovation and industrial structure upgrading, both of which can also only drive green technological progress but not green efficiency improvement. Regional heterogeneity suggests that the promotion effect of green finance on GTFP tends to be stronger and can significantly contribute to green efficiency improvement in regions with higher economic levels. The heterogeneity of natural resource endowment reveals that this promotion effect is more significant in resource-rich areas, but green finance still cannot significantly promote green efficiency improvement in these regions. In contrast, green finance can significantly enhance both green technological progress and green efficiency improvement in resource-general areas. The heterogeneity of the information technology level shows that this promotion is more significant in regions with higher levels of information technology, and in particular, the enhancement of green efficiency improvement by green finance in these regions is significantly positive. The findings provide valuable recommendations.