The impact of green growth on financial stability

Abstract

Purpose The international institutions, policymakers and governments are promoting green growth as a policy objective for global financial stability (FS) without sound empirical investigation. Therefore, the purpose of this study is to investigate whether the green economy would be successful in achieving its main objective i.e. stabilizing the world financial system because the investment stakes are too high for this green transition. Design/methodology/approach The study used the two-step system generalized method of moments (GMM) methodology on panel data of 90 countries for 6 years from 2010 to 2015 to investigate the impact of green growth economy on FS. Findings The results of the current study revealed that overall green growth enhanced FS in the country for both the short and long run. However, the social inclusive dimension of green growth was irrelevant in creating FS. Research limitations/implications The results of the current study validate the growth-led finance hypothesis and encourage the policymakers to strengthen the policy initiative for green growth. Because green growth mitigates economic and environmental risk to create a stable financial environment. However, social inclusiveness needs to be explored through alternate paradigm in relevance to FS. Originality/value As per the author’s knowledge, it is a pioneer study to empirically investigate the impact of green growth on FS which would be useful in understanding the green growth and FS dynamics.