Green finance, environmental quality and technological innovation in China

Abstract

This research analyses the impact of green finance development on the environmental quality of China. It utilises provincial panel data from 2006 to 2021 and takes technological innovation as the intermediary variable. Through the construction of a comprehensive index of green finance, technological innovation and environmental quality, we verify the hypothesis that green finance development does improve environmental quality. Taking innovation as the intermediary variable, this study examines the hypothesis that green finance enhances environmental quality by improving the level of innovation and also illustrates the importance of developing technology‐intensive industries. Heterogeneity analysis shows that different regions or different levels of green financial development have varying effects on environmental improvement. Finally, the findings validate the environmental Kuznets curve (EKC) by showing an inverted U‐shape link between green finance and environmental quality. The results herein offer a benchmark for policymakers to further strengthen green finance policy, increase the proportion of green investment and raise the support of green finance for technological innovation, thus improving environmental pollution and promoting sustainable economic development.