Is green bond issuance an effective policy instrument to promote green growth? A global analysis

Green growth has become a central policy objective in response to escalating climate risks and environmental degradation; however, the role of specific financial instruments, particularly green bonds, in driving this transition remains insufficiently understood. While existing studies have examined various forms of green finance, the distinct role of green bonds remains underexplored. This study addresses this gap by examining whether green bond issuance promotes green growth at the macro level. Using a panel dataset of 69 countries over the period 2010–2023, we employ a comprehensive Green Growth Index that captures multiple dimensions of sustainability, including resource efficiency, natural capital, green economic opportunities, and social inclusion. To ensure robust estimation, we apply a range of econometric techniques, including fixed effects (FE), Driscoll–Kraay standard errors, Panel-corrected standard errors, Two-step System GMMs, and Lewbel instrumental variable estimators. The results provide strong evidence that green bond issuance significantly enhances green growth at the global level, with a predominantly linear relationship. More interestingly, the sub-sample analyses reveal that green bond issuance significantly fosters green growth in advanced economies; however, its effect is not significant in emerging and developing economies. Further moderation analysis reveals that the effectiveness of green bonds increases with income levels and is strongly moderated by institutional quality, while financial development does not exhibit a statistically significant moderating effect. These findings suggest that although green bonds can serve as an effective policy instrument for promoting green growth, their impact critically depends on structural conditions, particularly institutional quality.