Driving carbon emission reduction in China through green finance and green innovation: an endogenous growth perspective

Abstract

Discovering drivers of carbon dioxide (CO 2 ) emissions is vital for the Chinese government to achieve carbon peak and carbon neutral. With this aim, a theoretical endogenous growth model capturing the mitigating effect of green finance and green innovation on carbon emissions is constructed in this study, which is further empirically examined using China’s municipal-level panel data during 2010–2019. The main findings are as follows: First, there is theoretical and empirical evidence supporting that green finance and green innovation can inhibit carbon emissions. Second, the above inhibitory effects demonstrate clear regional disparities with significant effects only in eastern and central Chinese cities, which are moderated by environmental regulations and marketization levels, respectively. Third, in cities with high green finance, green finance plays a more significant role in reducing carbon emissions than green innovation, and the opposite is true in cities with low green finance. In addition, the robustness and endogeneity checks indicate that the results of this study are robust and reliable. These theoretical and empirical findings create profound implications for CO 2 emission reduction by vigorously guiding funds to green finance and formulating scientific and effective environmental regulations to promote green innovation in China.

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