Assessing Long-run Dynamics of Financial Hedging, A New Determinants of Green Financing in E7 and G7 Countries

Abstract

The study estimates the long-run dynamics of a cleaner environment in promoting the gross domestic product of E7 and G7 countries. The recent study intends to estimate the climate change mitigation factor for a cleaner environment with the GDP of E7 countries and G7 countries from 2010 to 2018. For long-run estimation, second-generation panel data techniques including Augmented Dickey-Fuller (ADF), Phillip-Peron technique and fully modified ordinary least square (FMOLS) techniques are applied to draw the long-run inference. The results of study are robust with VECM technique. The outcomes of study revealed that climate change mitigation indicators affect more to the GDP of G7 countries than E7 countries. The GDP of both E7 and G7 countries is found depleting due to less clean environment. However, green financing techniques may clean the environment and reinforce the confidence of policymakers on the elevation of green economic growth in G7 and E7 countries. Furthermore, results show that a 1% rise in green financing index improves the environmental quality by 0.375% in G-7 countries, while it purifies 0.3920% environment in E7 countries. There is a need to reduce environmental pollution, shift energy generation sources towards alternative, innovative and green sources.