Abstract
Green bonds have developed rapidly, over a short period, in China's capital market, making it the world's largest green bond market. However, there is little empirical literature on China's green bond market growth drivers. This paper uses structural equation models to explain the driving factors and mechanism of the top-down development model of China's green bond market. The findings indicate that the local economy and environmental governance impacts growth more in the green bond market, followed by the institutional environment. In contrast, policy support impacts were small and statistically insignificant. Meanwhile, the effects of the local economy and environmental governance are direct, and the institutional environment indirectly promotes economic development. These results suggest that the local economy and institutional and environmental governance are the main driving factors for China's green bond market's rapid development and the reasons for unbalanced regional distribution. Overall, the findings have practical implications for further promoting the coordinated development of the green bond market and building a green financial system.
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