The Efficacy of Green Finance for Environmental Sustainability: Does Control of Corruption Makes a Difference?

Abstract

Green finance (GF) plays a crucial role in reducing greenhouse gas (GHG) emissions and promoting environmental sustainability (ES). However, the efficacy of GF may vary, depending on several factors, particularly the extent of control of corruption. This study investigates the effect of control of corruption on the efficacy of GF using data on 37 Asian countries for the period 2000-2020. The results demonstrate that the efficacy of GF in reducing the GHG emissions and improving ES in a country depends on the level of corruption there. Specifically, GF has a significant GHG reduction effect in the presence of strong corruption control or low corruption levels. These findings remain robust to several robustness checks, including alternative measurements of ES and corruption control and different estimators. This highlights the significance of enhancing control of corruption at the national level to optimize efficient utilization of GF resources and advancing ES. The study also presents policy implications based on these findings.