The Impact of Green Finance on High-Quality Economic Development in China: Vertical Fiscal Imbalance as the Moderating Effect

Abstract

The vigorous development of green finance has become a national strategy in China. Green finance is gradually becoming a key driver of high-quality economic development and a key area of concern for China’s economy and ecological environment. Based on the panel data of 30 Chinese provinces from 2001 to 2019, we analyzed the impact and mechanism of vertical fiscal imbalance (VFI) and green finance (GF) on high-quality economic development (HQD) and then used the fixed-effect model and spatial Durbin model for empirical testing. We found that GF can significantly contribute to HQD, but VFI has a negative moderating effect in contrast to the positive effect of GF on HQD. This negative moderating effect is strongest in the central region. According to the analysis of the spatial econometric model based on geography, economy, and the nested spatial weight matrix, we found that the local GF has a negative spatial transmission effect on the HQD of other regions. Therefore, it is recommended that the coordinated development of green finance among regions be promoted, while affairs and expenditure responsibilities be reasonably distributed between the central and local governments to drive HQD effectively.

Green bonds and US shale gas prices: Evidence from a novel time-varying causality

“…Manufacturers of environmentally friendly products can obtain financing from the market at a lower cost by issuing green bonds; however, the pandemic discourages the production of shale gas. It is comprehensible that corporations lack the financial resources to issue green bonds [ 23 ]. Investors and issuers are pessimistic about market conditions accompanied by escalating trade conflicts and geopolitical uncertainty, casting a shadow over the green bond market.…”

“…This statement suggests that the SGPI is not an external force that influences the GBI. Yang [ 23 ] believes that the factors affecting the price of green bonds mainly focus on the issue scale of green bonds and the characteristics of issuing enterprises, market liquidity investors, and the government, and not the SGPI. By studying the transaction data of domestic and foreign markets, Azhgaliyeva et al [ 24 ] showed a significant correlation between the price of carbon emissions and the GBI, whereas the causality between the GBI and SGPI is insignificant.…”

The impact and mechanism of vertical fiscal imbalance on green development efficiency: An empirical analysis based on city-level samples in China

“…Under severe vertical fiscal imbalance, local governments constantly search for sources of funding to reduce fiscal constraints. To achieve significant short-term GDP growth, they often exploit tax incentives or allocate overconcentrated financial resources to finance "short and quick" projects, such as infrastructure investment and real estate sector development [ 36 , 37 ]. This behavior, which prioritizes GDP, detracts from local government financial investment in green development and impedes the government's efforts to transition traditional industries into more environmentally friendly industries and to foster the growth of green enterprises.…”

“…The negative externalities of environmental pollution force local governments to transfer the costs of environmental protection through public resource pools. This may create “pollution havens” in neighboring underdeveloped regions, which could ultimately undermine the effectiveness of green development and produce significant amounts of undesired output [ 37 ]. (3) Moral hazard.…”

“…As a result, financial resources are disproportionately allocated to the productive sector, while cleaner industries are marginalized [ 39 ]. In addition, the “free-rider” mentality may result in inadequate investment in education, innovation, and ecological maintenance [ 37 ]. This detrimental approach weakens the motivation of enterprises to pursue green transformation in the long term, ultimately compromising the sustainability of local ecological resources.…”