Relationship between the green finance index, CO2 emission, and GDP

Abstract

Green technology innovation and effective use of green financing tools are very important in order to ensure sustainable economic and environmental development without environmental degradation, and to decarbonize all sectors. Evaluating the green investment process together with the inputs, outputs and the factors involved in the process will make important contributions in terms of determining the current situation, developing new and effective policies and raising awareness on green finance. For all these reasons, it is aimed to reveal the interaction mechanisms between GFI, CO2 emissions and GDP in this study. GFI, CO2 emissions, and GDP variables covering 26 countries between 2018-2021 were analyzed using panel data analysis with a fixed effects model. Firstly, it is found that CO2 emission had a negative effect on GFI, but GDP had a positive effect on GFI, and the effect of CO2 was greater than GDP. Secondly, GFI was found to have negative effects on CO2 emissions whereas GDP had positive effects, with GFI benefiting slightly more than GDP from these effects. Thirdly, GDP was shown to be positively affected by both GFI and CO2, and the analyses revealed that the effect of CO2 was much greater than that of GFI. The findings are considered important in terms of making predictions in terms of understanding and developing green finance and its effects.