Financial development and green growth from a global perspective: a dynamic panel threshold analysis

The global community has recently reflected on the pressing need for economic growth with environmental stewardship. To ensure this balance, the concept of green growth has emerged, offering economic prosperity as well as environmental preservation. This study evaluates the role of financial sector improvement in promoting green growth by analysing panel data for 132 countries from 1990 to 2019. Particularly, this research adds to empirical evidence by analysing the threshold-specific effect of financial development on green growth. This study employs the pooled ordinary least squares method and a dynamic panel threshold estimator. The empirical outcome revealed a U-shaped curve between financial sector development and green growth. Similarly, a U-shaped curve is observed between financial institutions and green growth. The threshold values for financial sector development and financial institutions are 24.57% and 20.94%, respectively. These findings emphasise that after reaching a certain threshold value, higher financial development will direct the economy toward green growth, thus ensuring environmental sustainability. However, in the case of development in financial markets, an inverted U-shaped curve is observed with a threshold value of 7.96%.