Does green finance promote low-carbon economic transition?

Environmental issues have become global challenges, so seeking an economic model to reach environmental sustainability is essential. As an emerging economic model, green finance is considered the most effective tool in promoting low-carbon economic transition. China, the largest economy among developing countries, faces environmental inferiority and increasing energy demand. This paper aims to discuss the effects of green finance on the low-carbon economic transition. This paper makes the policy of green financial reform and innovation pilot zones a quasi-natural experiment. It employs difference-in-differences (DID) model to analyze the impact of green finance on the low-carbon economic transition. This paper found that the low-carbon economic transition achieved good results within experimental zones after establishing a pilot zone for green finance reform and innovation. Furthermore, the parallel trend test results, complicatedly disturbing facts mitigating provincial differences, and placebo tests are still valid. Finally, we found that low-carbon economic transition solely takes effect significantly in eastern and central areas but is not significant in western areas. The paper suggests that green finance has played an apparent role in promoting low-carbon economic transition and provides essential reference and experimental evidence for future economic transition after analyzing the pilot zone for green finance reform and innovation policy.