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Academic Journal of Environment & Earth Science, 2023, 5(8); doi: 10.25236/AJEE.2023.050808.

The nexus between green finance and CO2 emissions in China: New evidence from a panel smooth transition regression


Junling Liu1, Jie Zhang2,3, Yudian Liu4

Corresponding Author:
Jie Zhang

1School of Economics, Guangxi University, Nanning, Guangxi, China

2The International College, Guangxi University, Nanning, Guangxi, China

3China-ASEAN Information Harbor Institute of Big Data Research, Guangxi University, Nanning, Guangxi, China

4Agricultural Bank of China Hebei Branch, Shijiazhuang, Hebei, China


Green finance is a pool of resources dedicated to the development of environmentally friendly businesses. It can encourage sustainable development by placing a high value on ecological balance. Green finance is increasingly being applied to environmental governance. China has attempted to achieve its dual carbon target through the development of green finance. However, the jury is still out on whether green finance can boost China's carbon reduction efforts. This study uses a panel smooth transition regression (PSTR) model to investigate the effect of green finance on carbon emissions in China using panel data for 30 Chinese provinces and cities from 2008 to 2018, and further discusses how the economic level affects the relationship. The study concludes that there is a nonlinear relationship between green finance and carbon emissions in China. The relationship between the impact of green finance on carbon emissions and changes with the economy can be described by a PSTR model with a transition function and threshold parameters. An increase in GDP per capita strengthens green finance’s emissions reduction effect. Furthermore, the study shows that an income gap above a certain threshold prevents green finance from achieving carbon emissions reduction. The study highlights the effective of the economic level on encouraging the development of green finance and achieving carbon emissions reduction.


green finance, CO2 emissions, panel smooth transition regression, China

Cite This Paper

Junling Liu, Jie Zhang, Yudian Liu. The nexus between green finance and CO2 emissions in China: New evidence from a panel smooth transition regression. Academic Journal of Environment & Earth Science (2023) Vol. 5 Issue 8: 68-79. https://doi.org/10.25236/AJEE.2023.050808.


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