How does green finance drive the decarbonization of the economy? Empirical evidence from China

The growing carbon crisis threatens sustainable development. This paper verifies that the rise of green finance contributes to overcoming this challenge. The benchmark results show that green finance can directly drive decarbonization of the economy. High-level openness, government support, human capital and urbanization are prerequisites of this effect, and green finance is more effective in promoting decarbonization in areas with high carbon intensity. Moreover, green finance drives economic decarbonization by promoting economic growth, technical innovation, industrial upgrading, and renewable energy transition. Internet availability, financial level and higher education have moderating roles in boosting this effect. Furthermore, the implementation of green finance policy also contributes to decarbonization. The robustness of the basic result is proven with several methods, thus strengthening the reliability of the basic conclusion in this paper. Based on the above main findings, targeted policy recommendations concerning how to further develop green finance are proposed in this paper.