The Impact of Green Finance Reform on Industrial Water Pollution: Evidence from Innovation Pilot Zones in China

Taking advantage of green finance to achieve the synergistic growth in the economy and ecology is a critical issue in China’s modernization. This paper first constructs a theoretical model including the finance sector to illustrate the reduction effect of green finance on Industrial Water Pollution (IWP). Then, through the panel data of 265 prefecture-level cities in China, we construct a multi-period difference-in-differences model to evaluate the effect of the Green Finance Reform and Innovation Pilot Zones (GFRIPZ) on the IWP and its mechanism channels. The findings show that: (1) The GFRIPZ significantly suppresses the IWP. This conclusion still holds after multiple robustness checks. (2) Mechanism analyses reveal that the GFRIPZ can reduce the IWP by promoting green technological innovation. Additionally, this reduction effect of green finance is strengthened as market-oriented reforms deepen. (3) Heterogeneity analyses indicate that, compared to central-western China, non-resource-based regions, and non-provincial-border cities, the reduction effect of GFRIPZ is stronger in eastern China, resource-based regions and provincial-border cities. This paper provides new evidence to understand the effect of green finance.