Moderating role of green innovation and fiscal expenditure towards achieving the Sustainable Development Agenda 2030 at provincial-level in China: policy implication from green total factor productivity.

Abstract

Amidst resource loss and environmental protection constraints, achieving green development necessitates enhancing green total factor productivity (GTFP) as a means of promoting rational and efficient resource allocation, thereby balancing economic growth and environmental preservation. Meanwhile, literature on the subject matter of GTFP from a sustainability viewpoint is minimal. As a result, this study employs the panel dataset from 30 provinces of China spanning the period 2005 to 2020 and utilizes the method of moments quantile regression (MMQR) developed by Machado and Santos Silva (2019) to analyze the heterogeneous role of green innovation, environmental regulations, and fiscal expenditure on GTFP. Moreover, the controlling variable for this study includes renewable energy and economic growth. Furthermore, this study investigates the heterogeneous combined impact of green innovation and fiscal expenditure (GTE*FSE) on GTFP. The findings of the MMQR reveal that green innovation has a positive impact on GTFP, while fiscal expenditure, environmental regulations, and renewable energy consumption have a negative impact. GTE*FSE has a positive and significant effect on GTFP, indicating that FSE can reinforce and increase the positive impact of GTE on GTFP in the long run. The study also reveals that economic growth has a mixed effect on GTFP, depending on the quantiles. Furthermore, environmental regulation has a significant and negative impact on GTFP, contradicting the Porter hypothesis. Likewise, the robustness of the findings is confirmed by the results of the fully modified OLS (FMOLS) and dynamic OLS (DOLS) estimations, which indicate a similar impact of the determinants on GTFP as observed in the MMQR analysis. This reinforces the validity of the findings and suggests that the observed relationships are robust to different estimation techniques. Furthermore, the findings of the Dumitrescu and Hurlin (D-H) panel causality test reveal significant bidirectional causality between renewable energy consumption and GTFP and fiscal expenditure and GTFP. Policy-makers need to channel a large chuck of their fiscal spending into green innovation so as to boost sustainability.