The Impact of Green Finance and Financial Globalization on Environmental Sustainability: Empirical Evidence from Türkiye

Abstract

Green finance—including bilateral and multilateral development aid and concessional loans—has emerged as a critical tool in supporting the transition to a low-carbon economy, particularly in emerging economies. Türkiye, since the early 2000s, has increasingly relied on climate-related official development flows in alignment with its sustainability and emissions reduction targets. This study examines the impact of green finance and financial globalization on environmental sustainability in Türkiye over the period 2001–2021. It specifically tests the load capacity curve (LCC) hypothesis, which posits a non-linear (U-shaped) relationship between financial drivers and ecological outcomes. The study employs the load capacity factor (LCF) as an environmental pressure indicator and uses ARDL, FMOLS, DOLS, and CCR estimation methods to ensure robustness. The results indicate that green finance has a long-term positive effect on Türkiye’s environmental sustainability, whereas financial globalization shows mixed effects. The findings confirm the presence of a U-shaped relationship between green finance and environmental pressure, supporting the LCC hypothesis. These results contribute to the limited empirical literature on green finance in emerging economies and suggest that policy frameworks should emphasize the sequencing and institutional alignment of green financial flows. Policymakers in Türkiye and similar economies may benefit from integrating green finance strategies with targeted regulatory reforms to maximize ecological benefits.