The effects and drivers of green financial reform in promoting environmentally-biased technological progress.

ABSTRACT

Promoting green financial reform is an important measure to support environmentally-biased technological progress (EBTP) and achieve sustainable economic and social development. Although China launched a green finance reform and innovation pilot zone (GFRIPZ) policy in 2017, little is known about whether and how such a policy affects EBTP. Based on mathematical deduction, this paper studies the mechanism through which green financial reform influences EBTP. The analysis employs panel data of Chinese prefecture-level cities and a generalized synthetic control method to examine the policy effect of the establishment of GFRIPZ in EBTP. It is found that establishing GFRIPZ significantly promotes EBTP, and that the policy effect shows "ahead-of-policy" and dynamically increasing features. Potential mechanisms reside in the pilot policy's easing of financing constraints and upgrading of industrial structure. Further heterogeneity analyses reveal that great disparities exist in the policy effects of different pilot zones, with a steadily increasing policy effect in Zhejiang and Guangdong, a lagging policy effect in Jiangxi and Guizhou, and an inverse U-shaped policy effect in Xinjiang. Policy effects are much stronger in regions with a higher degree of marketization and a higher level of attention to education. Additional tests of economic performance indicate that the pilot policy, interweaved with its driving effect on EBTP, is conducive to promoting an energy-conservation and low-carbon-energy transition. The findings shed light on applying green financial reform to encourage environment-friendly technological research and development.