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Do climate change policies, and environmental regulations affect the financial performance: policy-based analysis in context of green innovation

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Abstract

In these modern times, developed and developing economies use different means and strategies to attain economic growth and financial development. Still, environmental recovery instruments are not yet empirically explored in developed regions. The prime objective of this study is to unveil the nexus between electricity use, environmental policies, and financial development to report novel approaches through the lens of sustainable development. The present research examines the heterogeneous impacts of climate policies and ecological taxes on financial development. In doing so, the study has considered greener energy and institutional quality variables as policy factors for financial development. The authors employ the 29 OECD economies data from 1994 to 2020. This research gathered the data from authentic sources such as the OECD, the World Bank, and ICRG. The pre-estimation diagnostic (residual cross-section dependence, unit root, and cointegration) tests asserted cross-section dependence between countries, variables’ stationarity, and cointegration between the variables. Due to the asymmetrical behaviour of data shown by the Jarque and Bera (Int Stat Rev 55:163–172, 1987) test, this study uses non-parametric panel quantile regression. It asserts environmental policies and green electricity use have a substantial yet mixed influence on financial development. In contrast, trade openness and GDP are the significant factors of economic development in the region. Overall, Environmental taxes adversely affect financial development in developed countries across quantiles. This study suggests promoting and improving green investment, trade, and efficient environmental policies to encourage financial development in developed countries without affecting ecological quality.

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Data availability

Data are available upon request from the first or corresponding author.

Notes

  1. FDI: An investment, corporation, or government from another nation in a foreign enterprise or project.

  2. BRI: The Belt and Road Initiative, like the Silk Road, would build infrastructure from East Asia to Europe.

  3. The dataset contains nine indices that summarize how developed financial institutions and financial markets are in terms of their depth, access, and efficiency.

Abbreviations

CSD:

Cross-sectional dependence

FD:

Financial development

OECD:

Organization for Economic Co-operation and Development

GDP:

Gross domestic product

ENPO:

Environmental policies

ENT:

Environmental taxes

REN:

Green electricity

BQ:

Bureaucratic Quality

TO:

Trade openness

SDGs:

Sustainable development goals

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Funding

This work was sponsored in part by the National Natural Science Foundation of China's "Study to improve the management system for performance in stable poverty alleviation" (20STA058). Researchers Supporting Project number (RSP2024R87), King Saud University, Riyadh, Saudi Arabia. 

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Authors and Affiliations

  1. School of Finance and Economics, Anhui Science and Technology University, Bengbu, 233000, People’s Republic of China

    Li Yang & Xiaowei Feng

  2. Department of Production Engineering, São Paulo State University (UNESP), Bauru, Brazil

    Irum Shahzadi

  3. Department of Management, College of Business Administration, King Saud University, P.O. Box 71115, 11587, Riyadh, Saudi Arabia

    Abdelmohsen A. Nassani

  4. School of Economics, Széchenyi Istvàn University, Győr, Hungary

    Irum Shahzadi

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  1. Li Yang
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Yang, L., Shahzadi, I., Feng, X. et al. Do climate change policies, and environmental regulations affect the financial performance: policy-based analysis in context of green innovation. Environ Dev Sustain (2024). https://doi.org/10.1007/s10668-024-04834-9

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