Productivity gains from green finance: A holistic and regional examination from China

The productivity channel is extensively explored as a key mechanism through which finance influences economic growth. This paper specifically aims to assess the effect of green finance (GF) on firms' total factor productivity (TFP) using matched data on 2246 listed companies and their respective provinces in China from 2011 to 2019. The results demonstrate that, first, GF has a positive effect on firms' total factor productivity. Second, heterogeneity analysis reveals that the effects of GF differ across firms. Third, two paths through which GF can affect firms' TFP are identified: financing constraints and R&D investment. Finally, the differences-in-differences method suggests that green finance pilot policies contribute to an increase in firms' TFP in the pilot areas. However, the regression control method reveals regional variations in policy effectiveness and duration. In short, this study expands on the empirical literature that documents the nexus between productivity and financial markets and can provide an important theoretical and empirical basis for expanding the achievements of GF construction in China.