Exploring the impact of formal and informal finance on green innovation under the lens of carbon neutrality.

Abstract

In order to reduce environmental deterioration and promote sustainable growth, green innovation-which includes ecologically friendly technology and practices-has become a top priority of policymakers worldwide. This research investigates how formal and informal finance affects green innovation in highly polluted high, middle-, and low-income economies, using data spanning from 2007 to 2021. For analyzing the empirical link between formal finance, informal finance, and green innovation, we have employed the 2SLS and GMM estimation techniques. The primary estimates of the analysis suggest that formal and informal funding methods significantly impact environment-related technologies in high-income and middle- and low-income nations. Moreover, the GDP, carbon emissions, trade openness, human capital, research and development, financial stability, and digital finance are essential factors in promoting environment-related technologies in high-, middle-, and low-income nations, respectively. The policymakers in both groups of countries should foster collaboration between the formal and informal sectors to promote green innovations, which is essential for achieving sustainable development goals.