Green finance and green growth nexus: Evaluating the role of globalization and human capital

Tufail, Muhammad; Song, Lin; Khan, Zeeshan Article Green finance and green growth nexus: Evaluating the role of globalization and human capital Journal of Applied Economics Provided in Cooperation with: University of CEMA, Buenos Aires Suggested Citation: Tufail, Muhammad; Song, Lin; Khan, Zeeshan (2024) : Green finance and green growth nexus: Evaluating the role of globalization and human capital, Journal of Applied Economics, ISSN 1667-6726, Taylor & Francis, Abingdon, Vol. 27, Iss. 1, pp. 1-27, https://doi.org/10.1080/15140326.2024.2309437 This Version is available at: https://hdl.handle.net/10419/314256 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/4.0/ Journal of Applied Economics ISSN: (Print) (Online) Journal homepage: www.tandfonline.com/journals/recs20 Green finance and green growth nexus: evaluating the role of globalization and human capital Muhammad Tufail, Lin Song & Zeeshan Khan To cite this article: Muhammad Tufail, Lin Song & Zeeshan Khan (2024) Green finance and green growth nexus: evaluating the role of globalization and human capital, Journal of Applied Economics, 27:1, 2309437, DOI: 10.1080/15140326.2024.2309437 To link to this article: https://doi.org/10.1080/15140326.2024.2309437 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. Published online: 02 Feb 2024. Submit your article to this journal Article views: 4205 View related articles View Crossmark data Citing articles: 15 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=recs20 RESEARCH ARTICLE Green finance and green growth nexus: evaluating the role of globalization and human capital Muhammad Tufail a , Lin Song a and Zeeshan Khan b a School of Economics and Finance, Xi’an Jiaotong University, Xian, China; b Faculty of Business, Curtin University Malaysia, Miri, Malaysia ABSTRACT Green finance is one of the emerging research areas, particularly in academia and industries. However, its contribution to green growth remains relatively unexplored. Unlike previous studies, the current research contributes to the existing literature by using green finance as a policy tool for achieving green growth. The method of moment quantile regression is used to investigate the link between green finance and other control variables on green growth in the 19 selected OECD economies from 1990 and 2021. The main findings of the study support the idea that green finance accelerates green growth in the selected countries. Similarly, the results for human capital show a significantly positive relationship with green growth. Additionally, increase in globalization and GDP decrease green growth. To promote green growth and achieve the sustainable environmental goals set by OECD economies, policymakers and regulators must prioritize green finance. ARTICLE HISTORY Received 12 September 2023 Accepted 10 January 2024 KEYWORDS Green finance; green growth; OECD economies; MMQR approach 1. Introduction Many financial activities around the globe experienced a slowdown and in some cases production even came to a halt due to the COVID-19 pandemic that began at the end of 2019 (Xu et al., 2023). Scholars and environmentalists worldwide (Feng et al., 2022; Z. Khan et al., 2023; Werikhe, 2022; Xu et al., 2023) argue that as firms and ventures resume their financial operations, they should prioritize environmental concerns. This concept is often referred to as the green recovery of the global economy and there is an urgent need for nations to work towards achieving their sustainable development goals (Xu et al., 2023; Yu et al., 2023). Furthermore, the green economic recovery can lead to an environmentally friendly society, innovations, worldwide integration, create employment, a carbon-neutral economy, and a reduction in severe environmental issues. Conversely pushing economies to embrace the idea of green economic recovery will undoubtedly promote the transition to clean energy and reduce the world’s dependence on fossil fules. Considering non-renewable energy sources primarily petroleum as the root cause of economic crises such as oil shocks, political tensions, and even armed CONTACT Muhammad Tufail [email protected]; [email protected] School of Economics and Finance, Xi’an Jiaotong University, Xian, China JOURNAL OF APPLIED ECONOMICS 2024, VOL. 27, NO. 1, 2309437 https://doi.org/10.1080/15140326.2024.2309437 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial License (http:// creativecommons.org/licenses/by-nc/4.0/), which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent. conflict among nations (Johnstone & McLeish, 2020; G. Li et al., 2020; Xu et al., 2023) a green economic recovery that reduces reliance on fossils fuels can lead to a positive outcomes such as peace and stability. Although all the benefits of green economic restoration, the most difficult challenge is the absence of sufficient capital to sustain green tasks. Financiers in the economic sector are reluctant to sustain green projects given that they frequently have late returns and also pay low profits in the future. The lack of funding for varied green project development is reviewed as a critical concern since federal governments, particularly in developing nations, need more cash to progress all environment-friendly efforts and various other financial projects. This issue became more serious during the COVID-19 pandemic. The government’s concentration became more serious on saving the lives of the people, and there was little importance given to such projects (Martawardaya et al., 2022). As a result, developed and developing economies must find a suitable solution to counteract these flaws. One of the most viable and inventive approaches to address this serious problem is to use green finance systematically and economically. Green financing is expected to effectively stimulate exogenous green growth through increased investment in green initiatives. Furthermore implementing environmentally sustainable initiatives will enhance overall welfare, establish eco-conscious economic structures, mitigate mortality rate caused by air pollution, and generate employment opportunities. The development of renewable resources enables the revival of the economy, leading to sustainable growth and eco-friendly economic advancement. Huang et al., (2022) believed that green finance can facilitate the advancement of green technologies in advanced nations. The objective of green development is to modernize countries, reduce their energy consumption, and promote the use of innovative green technologies. Similarly, Zhang et al. (2022) asserted that the implementation of environmentally friendly initiatives can boost the effectiveness of green finance as a driver for sustainable development in impoverished countries. It is critically important to investigate the relationship between green finance and green growth, particularly in the post-COVID-19 pandemic, when economies are attempting to revive economic development based on environmental factors. For this purpose, numerous studies took place and they have examined different indicators for green growth and environmental issues. These indicators such as industrialization (Mealy & Teytelboym, 2022), renewable energy consumption (T. Jiang et al., 2022; Sarwar, 2022), financial development (Xuan et al., 2023), globalization (Chen et al., 2023), fiscal decentralization (Tufail et al., 2021), agriculture (Y. Lin & Li, 2023) and tourism (Shang et al., 2023). However, the existing body of previous studies has ignored the relationship between green finance and green growth, particularly in OECD economies. Furthermore, to additionally explain the green finance in selected OECD countries Figure 1 presents the variation in diverse environmentally related government R&D budgets in these economies. We calculated the averages of each year for all 19 selected economies and presented the result in Figure 1. The graph illustrates the consistent gradual increase in green finance across OECD economies. However, Figure 1 additionally shows that green finance decreased during the global economic crisis of (2007–08) which went through a large adverse adjustment in 2010, which is an indication of the European financial obligation situation. After 2008 these economies gradually moved towards a better green finance system. Unfortunately, 2M. TUFAIL ET AL. again at the end of 2019 when the pandemic started, these economies decreased their finances, particularly for environmentally friendly projects. The decline in green finance in OECD economies during the specified years may be attributed to changes in government administrations, the global financial crisis, and the COVID-19 pandemic. However, several barriers to green finance exist, including a lack of comprehension among financiers. Moreover, investors often face challenges in decision-making due to insufficient information and stringent quality requirements. As green finance aligns with conventional finance and contributes to the economic growth of countries, the concept is still emerging and there remains an urgent need for in-depth research. Based on the above discussion it is important to study whether the ongoing development of green finance in the selected OECD economies can contribute to the advancement of green growth. This is particularly valuable for analyzing and assessing the ongoing development of green finance in OECD economies. Moreover, it is evident from the preceding discussion that additional studies are necessary to establish the link between green finance and green growth. Therefore, our current research aims to address this gap by examining the effect of green finance on green growth in the selected Figure 1. Green finance in OECD economies 1990–2021. Source: Authors visualization based on 19 (OECD) economies panel data from OECD statistics. JOURNAL OF APPLIED ECONOMICS 3 economies. Additionally, we have incorporated essential control variables such as human capital, globalization, and economic development to conduct a more comprehensive analysis of their influence on green growth. The selection of these variables is based on the high literacy rates, well-globalized market, and pursuit of high economic growth in OECD economies. We employed the MMQR regression method because it provides a flexible and robust framework for modeling the conditional distribution of the dependent variable, accounting for heterogeneity, outliers, and nonlinear relationships. This research assesses the current state of green development in OECD economies and explores its potential impact on future green growth. The findings of this research have the potential to aid policymakers and environmentalists in recognizing green finance as a pivotal indicator for fostering green growth and contributing to the protection of the ecosystem for both present and future generations. We selected the OECD economies for this study because these economies collectively represent a substantial share of the global economy. The OECD member states include some of the world’s advanced economies such as the USA, Australia, Denmark, and others. These nations play a significant role in globalization, international trade, and investment. Furthermore, they possess robust institutional frameworks and regulatory environments that can facilitate the Figure 2. Methodological Design. Source: Authors Visualization 4M. TUFAIL ET AL. implementation of green finance initiatives including well-established financial systems, effective governance structures, and a mature legal framework. Therefore, studying the experiences and knowledge of these economies is essential for a comprehensive understanding of the subject matter. Based on the article’s aims and contribution to previous literature the study structure can be designed in the following way. Section 2 deeply elaborates on the recent literature review relevant to the study and formulates the literature gap. Section 3 discusses the theoretical mechanism and methodology of the study. The section 4 discusses the results as well as discussions. Section 5 elaborates conclusion and appropriate policy recommendations. 2. Literature review 2.1. Green finance and green growth Although there is no globally approved definition of green finance as a brand-new financial model the literature offers three basic summaries. The first is environmental finance, which provides financial solutions to address practical issues such as environmental management, pollution monitoring, resource preservation, and other ecofriendly initiatives (Latif et al., 2022). According to the 2nd perspective, financial development employs various financial techniques and products to mitigate environmental risks (Bhattacharyya, 2022). The third and most recent perspective posits that green finance constitutes a financial framework that promotes environmentally friendly investments and contributes to the development of an environmentally conscious society with a focus on carbon finance (Zhao et al., 2023). Generally, prior research in the field of Figure 3. Visualization of MMQR results. Source: Authors Visualization based on MMQREG technique applied in STATA. JOURNAL OF APPLIED ECONOMICS 5 green finance can be categorized into two distinct study groups. The first group concentrated on the efficiency aspect of green finance solutions examining how this strategy could be implemented using sustainable growth strategies in various countries both theoretically and experimentally. Conversely, several studies have demonstrated the ineffectiveness of financial strategies due to various reasons including the lack of transparency in policymaking and government intervention. In the first group of studies, various findings highlighted the effectiveness of green finance tools in advancing green growth and energy transformation goals. For instance, M. A. Khan et al. (2022) studied Asian economies and found that green finance helps reduce carbon footprint. Similarly, Peng & Xiong (2022) conducted research in China and concluded that it promoted Chinese green projects. Furthermore, Al Mamun et al. (2022) examined the global impact of green finance showing significant positive effects worldwide. The second group focused on the relationship between green finance tools and other financial sector indicators. For instance, R. Wang et al. (2022) investigated the effectiveness of green finance advertisements on green growth but found limited impact on development targets. M. Liu (2022) discovered the inefficiency of the green bond market due to its poor resilience to volatility. Adekoya et al. (2021) found a similar inefficiency in the U.S. green bond market due to high volatility. In the case of Hong Kong, Ng (2018) concluded that practical plans and market-based approaches are necessary for the green finance system to be more effective. Similarly, in the case of Colombia, Ruiz et al. (2016) advocated for government intervention to stimulate private involvement in the green financing system. The second group of studies investigated the complex relationship between green finance tools and various key factors. The literature in this domain probed the intersections of green finance with resource efficiency and its impact on green growth as exemplified by the work of Sun et al. (2022). Desalegn & Tangl (2022) conducted a comprehensive review of prior studies culminating in the discernment that green finance indeed exerts a positive influence on overall green economic growth. Huang et al. (2022) contended that substantial green growth can be realized through the judicious application of green finance driven by the catalytic spillover effect of green technology. This argument received empirical validation in the research conducted by Mngumi et al. (2022), who meticulously analyzed spanning the BRICS economies from 2005 to 2019 using a panel quantile regression methodology. Furthermore, H. Zhou & Xu (2022) illustrated the outcomes derived from the advancement of fintech technology with this progress moderated by green finance, ultimately leading to a discernible upsurge in green economic growth. X. Wang & Wang (2021) underscored the pivotal role played by green finance in the revitalization of the commercial framework thereby contributing positively to green growth (X. Zhou et al., 2020). in their study focused on various provinces in China unearthed that green finance serves as a potent driver not only for economic expansion but also for environmental enhancement. 2.2. Globalization and green growth Social Scientists and policymakers have engaged in robust debates concerning the impact of globalization on economic growth. Some argue that globalization fosters sustainable development (Jahanger, Chishti, et al., 2022; Zeraibi et al., 2023). Ulucak et al. (2020) 6M. TUFAIL ET AL. identified three channels through which globalization affects eco-friendly development. The “scale impact” posits that economic globalization may raise nonrenewable fuel consumption, potentially harming environmental quality. The “technological effect” effect contends that it can promote more efficient and environmentally friendly green development. The structure effect suggested a nuanced link with both positive and negative implications for eco-friendly growth (Chen et al., 2023). The impact of financial globalization varies across studies. C. Jiang & Chang (2022) found a positive influence on the ecofriendly development of the host economy while Song et al. (2015) indicated potential efficiency reduction in heavily polluting industries. X. L. Wang et al. (2021) highlighted negative spillover effects on eco-friendly productivity in the industrial sector. However, W. Li et al. (2019) argued that financial globalization leads to technological advancement that expedites eco-friendly transformation in the host economies’ industrial sectors promoting eco-friendly development. B. Lin & Zhu (2019) observed a positive effect in Taiwan, Macao, and Hong Kong while Chen et al. (2023) suggested a beneficial impact on domestic consumers further stimulating eco-friendly growth. These findings underscore the ongoing debate surroundings the influence of economic globalization on green growth 2.3. Human capital and green growth The endogenous growth theory underscores the pivotal role of human capital in the production process and economic growth (Jahanger, Hossain, et al., 2023; Zafar et al., 2019). Human capital is intricately connected with the natural system and exerts a substantial influence on environmental issues. For instance, it facilitates the adaptation of the economic system, spurs industrial growth, enhances public awareness of environmental concerns, and encourages the development of green technologies through research and development investment (Ganda, 2022). Recent research substantiated the positive impact of human capital on carbon emissions reduction in BRICS economies for the period of 1990 to 2017 (Ganda, 2022). This underscored the importance of ongoing environmental education to promote comprehension of zero emissions policies and foster sustainable environmental prosperity. Further research revealed that South Asia displays a higher propensity to embrace green technologies and promote the sustainable use of natural resources when equipped with advanced knowledge and education (Sarkodie et al., 2020). Similar findings are evident in the context of Latin America and the Caribbean (Nathaniel et al., 2021) where the development of human capital and increased environmental awareness and conducive to sustainable economic growth. A study conducted in Pakistan between 1971 and 2014 demonstrated that a higher level of human development led to a reduction in carbon emissions without impeding economic expansion (Bano et al., 2018). In the case of the United States, Zafar et al. (2019) used the ARDL model and found that human capital has a positive impact on environmental quality and efficient utilization of natural resources. 2.4. Economic growth and green growth The available literature has not directly explored the specific relationship between economic growth and green growth though a limited body of literature has explored JOURNAL OF APPLIED ECONOMICS 7 yit ¼aiþXK k¼1γkð Þ iyi:tkþXK k¼1βkð Þ ixi;tkþεit (12) In the above equation aiandβi the slope coefficients and individual intercept, while the symbol “i” and t represents cross-section and time period respectively. Moreover γkð Þ i and βkð Þ i are the autoregressive parameters and the regression coefficient estimates respectively. In the temporal dimension, the parameters ai and βi are constant, but the parameters γkð Þ i and βkð Þ i are expected to vary between nations. The (Dumitrescu & Hurlin, 2012) panel causality approach contrasts a causal relationship as the alternative to the null hypothesis of no causal relationship. Following are the average test statistic and standardized test statistic for the (Dumitrescu & Hurlin, 2012) test: WHNC N;T¼N1XN i¼1Wi;T(13) ZHNC N;T¼ffiffiffiffiffi N 2M qWHNC N;TM � �!N0;1ð Þ (14) The Wi;T shows the individual Wald statistics, while the WHNC N;T and ZHNC N;T represents the average and standardized test statistics. The methodological strcture of the current study is outlined in Figure 2 respectively. 4. Results and discussion This section presents the empirical findings of the study and discusses the assessment outlines in section 3. Table 2 provides the descriptive statistics for the targeted variables. The statistics reveal variations in the range values of the variables indicating an irregular monitoring pattern. To validate the volatility of the GREG, GLOB, GDP, HUMC, and GREF over the selected period, standard deviation values are assessed. The study also analyzes the non-normal distribution of the variables including Kurtosis and Skewness. Since the normality analysis as per (Jarque & Bera, 1987) is applied, this research considers data normality and significance concern. The results confirm that the observed statistics exceed the critical value at the 1%, 5%, and 10% significance level. Consequently, the null hypothesis is rejected for each of these variables, implying the presence of non-linearity in all of them. Table 3 presents the results of slope heterogeneity and cross-sectional dependence. The outcomes of the test introduced by (M. H. Pesaran & Yamagata, 2008) for the Table 2. Descriptive statistics. GREG GREF GLOB HUMC GDP Mean 2.127 3.959 76.64 3.116 8.33E+11 Median 1.885 2.740 79.47 3.135 2.51E+11 Maximum 10.33 20.78 90.32 3.721 4.58E+12 Minimum −4.110 0.000 43.88 1.920 9.14E+09 Std. Dev. 2.119 4.171 10.23 0.384 1.14E+12 Skewness 0.923 2.133 −1.056 −0.568 1.679 Kurtosis 6.838 6.915 3.501 2.877 4.861 Jarque-Bera 459.7 849.5 119.5 33.10 373.4 Probability 0.000 0.000 0.000 0.000 0.000 14 M. TUFAIL ET AL. targeted model indicate a substantial and significant delta and adjusted delta values providing strong evidence to reject the null hypothesis of heterogeneous slope and support the alternative of heterogeneous slope at the 1% level of significance. The various financial frameworks and interdependencies among the targeted OECD countries offer a plausible explanation for this heterogeneity. When an economic phenomenon or event occurs in one country, it generates shockwaves in other nations. Furthermore, the results of the test (H. Pesaran, 2004) also support the acceptance of the alternative hypothesis of cross-section dependency for all variables found at the 1% and 5% significance levels. This indicates the presence of cross-sectional dependency among the cross-sectional units of the data. The integration of regional trade and economic activities amongst OECD countries is among the factors contributing to this cross-sectional dependency. These findings align with recent research specifically focused on green growth (Chen et al., 2023; Sharif et al., 2023). The presence of cross-sectional dependency and slope heterogeneity in the panel data can result in biased and less informative results. To address this issue the study employs the most updated and robust panel unit root test introduced by (M. H. Pesaran, 2007). The outcomes of this test are presented in Table 4. The results confirm that globalization (GLOB) and green finance become stationary at the level. Conversely, when considered in the first differences the green growth (GREG), economic growth (GDP), and human capital become stationary at a 1 percent significance level. The long-run connections between the variables are tested using two different cointegration tests namely (Pedroni, 1999) and the Johansen-Fisher panel test (Maddala & Wu, 1999). The results from these tests are presented in Table 5. The Pedroni cointegration test results reveal that six out of the eleven statistics (Panel PP, Panel ADF, Weighted Panel pp, Weighted Panel ADF, Group pp, and also Group ADF) are statistically Table 3. Slope heterogeneity and cross-section dependence results. Homogenous/Heterogeneous Slope Coefficient Testing ~ Δ~ ΔAjusted 24.587*** 27.277*** Pesaran and Yamagata (2008) Cross-Section Dependence Test GREG GLOB GDP HUMC 8.3924*** 70.162*** 63.649*** 67.862*** GREF 1.3093** 1%, 5%, and 10% significance is denoted by ***, **, and *. Table 4. Panel unit root results. Variable(s) At Level At First Difference Order of IntegrationI0ð Þ I1ð Þ GREG −2.217 −4.932*** I(1) GLOB −3.112*** - I(0) GDP −1.962 −4.636*** I(1) HUMC 0.219 −3.564*** I(1) GREF −3.316*** - I(0) 1%, 5%, and 10% significance is denoted by ***, **, and *. JOURNAL OF APPLIED ECONOMICS 15 significant at the 1% and 5% significance levels. Furthermore, the outcomes indicate the presence of a cointegrated connection between the targeted variables at the 1 percent significance level according to Fisher’s cointegration test (trace test statistics or MaxEigen test statistics, regardless). Therefore it can be concluded that the variables of interest which include green growth, green finance, globalization, human capital, and GDP tend to move together in the long run. After establishing the cointegration among the targeted variables, we proceeded to conduct regression analysis to assess the long-run impact of the core explanatory variables notably green finance along with other control variables including globalization, human capital, and economic growth on green growth in the case of 19 OECD economies. To support this investigation, we employed the method of moment quantile regressions. The results of the MMQR analysis are presented in Table 6. Our findings reveal that green finance exerts a significant and positive influence on green growth across all quantiles. A one percent increase in green finance corresponds to a 0.015%,0.017%,0.20%, and 0.024% increase in green growth progressing from the lower (25 th percentile) to the higher (90 th percentile) quantiles. This emphasize the critical role played by Green finance in fostering green growth in OECD countries. In these nations, green finance enables the redirection of capital towards environmentally responsible and sustainable enterprises. Instruments such as green bonds, green loans, Table 5. Panel cointegration test results. H0: No cointegration Statistics Probability Pedroni cointegration test Panel v −0.0386 0.5154 Panel rho 0.4978 0.6907 Panel pp −2.2651** 0.0118 Panel ADF −2.4163*** 0.0078 Weighted Panel v −0.5307 0.7022 Weighted Panel rho −0.3848 0.3502 Weighted Panel pp −5.0208*** 0.0000 Weighted Panel ADF −5.6811*** 0.0000 Group rho 1.5458 0.9389 Group pp −4.0674*** 0.0000 Group ADF −3.3687*** 0.0004 No. of CE(s) Fisher stats* (trace test) Fisher stats* (max-Eigen test) Johansen Fisher Cointegration test None 277.9*** 181.0*** At most 1 135.4*** 64.57*** At most 2 95.80*** 51.38** At most 3 76.89*** 52.44** At most 4 89.59*** 89.59*** 1%, 5%, and 10% significance is denoted by ***, **, and *. Table 6. Method of moment quantile regression (MMQR). Variables Location Scale Quantiles Q 0.25 Q 0.50 Q 0.75 Q 0.90 GREF 0.0176 0.0033 0.0151*** 0.0173*** 0.0201*** 0.0243*** GLOB −0.0395 −0.0147 −0.0282** −0.0380*** −0.0504*** −0.0689*** HUMC 1.4156 0.4556 1.0667*** 1.3696*** 1.7537*** 2.3265*** GDP −0.1856 −0.4073 −0.1263* −0.1445* −0.4878*** −1.0000*** 1%, 5%, and 10% significance is denoted by ***, **, and *. 16 M. TUFAIL ET AL. and sustainable mutual funds incentivized investors to channel their capital into projects with a favorable environmental impact. These projects includes areas such as energyefficient buildings, sustainable transportation systems, and renewable energy infrastructure. The promotion of green finance ultimately contributes to the expansion of the ecofriendly market. Furthermore, green finance catalyzes innovation by offering financial incentives for the development and promotion of green technology and sustainable practices. As financial institutions evaluate the environmental risk associated with their investments they recognize the potential for advancement in industries that contribute to environmental solutions. This in turn can drive the growth of green technologies including solar energy, wind energy, and electric vehicles, thereby revolutionizing markets and creating new avenues for green economic growth. The incentives provided by green finance systems play a crucial role in accelerating the adoption of these technologies, thereby supporting overall green growth in OECD countries. Our findings align with the conclusion drawn in recent studies by Gu et al. (2023), Xu et al. (2023), and G. Zhou et al. (2022). The results of the MMQR analysis indicate that globalization has a negative and significant impact on green growth across all quantiles. Specifically, the findings suggest that a one percent increase in globalization is associated with a 0.028%,0.038%,0.050%, and 0.068% reduction in green growth ranging from the lower to high (25 th percentile) to the higher (90 th percentile) quantiles. This phenomenon can be attributed to the fact that the expansion of international trade and production has increased existing environmental issues such as deforestation, air pollution, and carbon emissions with many products traversing complex supply chains that span international borders, it becomes increasingly challenging to pinpoint the ultimate responsibility for a product’s carbon footprint. Additionally, environmental regulations have often been relaxed in favor of growing economy, creating a delicate tradeoff between short-term progress and long-term environmental sustainability. The effect of globalization on green growth can be further influenced by variations in environmental regulation among OECD countries. The competition of foreign investment can lead nations to lower their environmental standards, resulting in a “race to the bottom” where environmental concerns are compromised for economic gains. Such regulatory disparities can create imbalances in green growth initiatives among OECD nations. These findings are consistent with previous studies by Ahmad & Wu (2022) and Xuan et al. (2023), while the results differ from the outcomes of Chen et al. (2023). Table 6 reveals noteworthy observations: the results consistently affirm that human capital has a significant and positive influence on green growth across all quantiles. According to the outcomes in ceteris paribus a one percent increase in human capital is associated with a substantial 1.066%,1.369%,1.753%, and 2.326% increase in green growth from low to high (25 th to 90 th ) quantiles. Human capital in this context plays a pivotal role as a catalyst for progress and a crucial driver of green growth. This positive relationship between human capital and green growth can be attributed to several factors. Knowledgeable and experienced individuals are better equipped to identify sustainable solutions, develop innovative green technologies, and implement resource-efficient practices. Investments in education and training contribute to building a workforce that is well-prepared to tackle environmental challenges creatively and devise novel approaches to more environmentally JOURNAL OF APPLIED ECONOMICS 17 friendly methods. Furthermore, the influence of human capital extends to consumer behavior as it promotes a heightened awareness of the environmental consequences associated with consumption choices. Informed individuals are more likely to make choices that support sustainable products and services thereby encouraging businesses to adopt greener practices to this demand. In the context of OECD economies where there is a high literacy rate the role of human capital in driving green growth becomes especially pronounced. These findings align with prior research in existing literature underscoring the positive relationship between human capital and green growth as evidenced in studies by Nathaniel et al. (2021) and H. Wang et al. (2023). Table 6 further affirms that economic growth has a negative and statistically significant impact on green growth across all quantiles in the case of selected 19 OECD economies. The results indicate that in ceteris paribus a 1 percent surge in economic growth is associated with a reduction of 0.126%,0.144%,0.487%, and 1.00% in green growth from low to high (25 th to 90 th ) quantiles. High rates of economic growth are often linked to increased resource consumption including heightened demand for energy, water, and raw materials. If these resources are not managed sustainably, it can lead to environmental degradation and a decline in green growth. Additionally, it’s worth noting that economic growth is typically measured on a quarterly or annual basis which can incentivize short-term decision-making. This emphasis on short-term gains may result in the neglect of long-term environmental considerations in favor of immediate financial benefits. This phenomenon has been observed in prior studies as demonstrated by Ngo et al. (2022); and Tufail, Song, Umut, et al. (2022). The results of the MMQR model are outlined in Figure 3. It is crucial to check the robustness of the model to compare the results with the primary model of the study. Therefore this study employs the causality test proposed by Dumitrescu & Hurlin (2012) for conducting a robustness test. The results are detailed in Table 7, indicating the existence of bi-directional causality among all the selected variables. The variables GLOB�GREG,GREG�GLOB;GDP�GREG, GREG�GDP, HUMC�GREG, GREG�HUMC;GREF�GREG;and GREG�GREF show bidirectional causality with each other at significance levels with 1%, 5 %, and 10%. These results signify that globalization and green growth, economic growth and green growth, human capital and green growth, and green finance and green growth cause each other as statistically presented in Table 7. Furthermore, an overview of the abbreviations can be found in Table 8. Table 7. Causality test (dumitrescu-hurlin). H 0 Wald Stats Z Stats p value sð Þ GLOB�GREG 6.7199*** 5.0033 0.000 GREG�GLOB 8.5600*** 4.7096 0.000 GDP�GREG 6.3474*** 7.6696 0.000 GREG�GDP 7.5330*** 5.1776 0.000 HUMC�GREG 9.7369*** 6.8030 0.000 GREG�HUMC 3.5462** 2.5219 0.011 GREF�GREG 8.6413*** 5.8590 0.000 GREG�GREF 3.2342* 1.9485 0.051 1%, 5%, and 10% significance is denoted by ***, **, and *. 18 M. TUFAIL ET AL. 5. Conclusion, policy recommendations, and limitations The concept of green finance, which combines economic resources with environmental progress, has garnered significant attention in contemporary financial and environmental literature. However, there remains a somewhat limited understanding of the relationship between green finance and green growth, specifically in the case of OECD economies. This study contributes novel insight to the existing body of research by scrutinizing the impact of green finance on green growth in the presence of human capital, globalization, and economic growth for panel of 19 selected OECD economies over the period 1990 to 2021. Employing rigorous econometric methods this study produces reliable and solid findings. It is noteworthy that the model suffers from slope heterogeneity and the cross-sections are dependent. All variables in the analysis exhibit mixed order integration, with some existing at a level while others require first differencing. Moreover, long-run cointegration is evident among all under investigation in this study. The findings emphasize the significance of green finance, human capital, globalization, and economic growth in the context of green growth. Notably an increase in green finance and enhanced human capital contribute positively to green growth in the sample OECD economies. In contrast, Globalization and GDP show a negative association with green growth. Furthermore, the study shows compelling evidence of bidirectional causality among all the variables targeted in the analysis. This study suggests specific policy implications based on the findings. First, it recommends that OECD countries foster green finance by instituting consistent and transparent regulations that support environmentally responsible investments. These measures include the establishment of explicit criteria delineating green investment, ensuring standardized reporting on environmental impacts, and introducing tax incentives aimed at incentivizing individuals and businesses to invest in sustainable sectors. Collectively these measures serve to promote green growth by attracting financial support for ecofriendly projects, enhancing transparency, and reducing financial barriers for those interested in championing environmentally beneficial initiatives. Second it is suggested that expanding the green bond market represents a strategic approach to facilitate the financing of environmentally responsible initiatives in the case of OECD economies. Green bonds are financial instruments purposefully designed to finance environmental projects. Furthermore, financial institutions can be encouraged to create and promote these bonds thereby fostering their growth. These bonds are structured following green investment criteria, rendering them appealing to socially and environmentally conscious investors. Additionally, governments can issue green bonds to raise funds for environmentally friendly programs and initiatives. In doing so, they not only demonstrate their commitment to sustainability but also attract investment from individuals and institutions interested in supporting environmental causes. This development of the green bond market increases the availability of capital for projects contributing to environmental wellbeing thereby consolidating actions to achieve environmental sustainability. Third it is suggested that collaboration with both OECD and non-OECD nations is critical for establishing standardized norms in green finance and fostering international investment in sustainable initiatives. This collaboration necessitates active engagement in international climate accords and initiatives designed to align national policies with JOURNAL OF APPLIED ECONOMICS 19 global sustainability objectives. Through participation in these international initiatives, countries can harmonize their approaches to green finance thereby establishing consistent standards and regulations that facilitate cross-border investments in environmentally responsible projects. This not only serves to channel more funding towards sustainable initiatives but also ensures that nations work collectively toward a shared goal of combating climate change and promoting green growth on a global scale. The study is subject to certain limitations. First and foremost, it is essential to note that the study scope is constrained to the investigation of 19 OECD economies. Originally, we intended to encompass all 37 OECD economies. However, due to data limitations, the selection was reduced from 37 to 19 economies. Additionally, despite our initial objective to cover data up to the year 2023 limitations in the available data constrained us to restrict our empirical analysis to date up to 2021. Furthermore, it would be of significant interest for future research to consider the impact of recent global crises like the IsraelPalestinian conflict the RussiaUkraine conflict, and the economic consequences of COVID-19. These crises have significantly disturbed the global economic landscape, and an investigation into their effects could yield valuable insights. Morover this study focuses on OECD economies as a case study, future research studies could explore other economic groups such as BRICS, G7, and G8 potentially leading to informative and innovative findings. Additionally, there is potential for further research to examine the relationship between green finance and various other factors including social, governance, and environmental dimensions. Analyzing these multidimensional relationships could may provide a more comprehensive understanding of the dynamics at play in green finance initiatives. Abbreviations OECD Organization for Economic Cooperation and Development MMQR Method of Moment Quantile Regressions ARDL Auto Regressive Distributive Lag EKC Environmental Kuznets Curve GREG Green Growth GREF Green Finance GLOB Globalization GDP Gross Domestic Product HUMC Human Capital R&D Research and Development Acknowledgments We are grateful for the helpful comments and suggestions provided to us by Thomas Ziesemer (Associate editor) and the two anonymous referees. Disclosure statement No potential conflict of interest was reported by the author(s). 20 M. TUFAIL ET AL. Notes on contributors Muhammad Tufail is a Ph.D. candidate in the School of Economics and Finance, at Xi’an Jiaotong University China. His research interests focus on Environmental Economics, Energy Economics, and Economics of Crime. His research work has been published in journals like Energy Policy, Sustainable Development, Journal of Cleaner Production, Economic Research-Ekonomska Istraživanja and Journal of the Knowledge Economy, etc. Professor Lin Song is a supervisor of Ph.D. candidates at the School of Economics and Finance, Xi’an Jiaotong University China. He has a vast teaching experience in different institutions. From 1993 to 2000 he was a counselor and teaching assistant at the Industrial Economics Department at the former Shaanxi Institute of Finance and Economics. From 2000 to 2007 he performed a lecturer post at the School of Economics and Finance at Xian Jiaotong University. From 2010 to 2011 he was a visiting scholar of the China Scholarship Council at the University of Nottingham UK. From 2011 he worked as a Doctoral Supervisor and got a Professorship in 2012. His research field is Labor Market, Industrial Organization, and Corporate Governance. Professor Song has won several prestigious awards related to his research work from GOC. Moreover, his research work has been published in journals such as Resources Policy, AsianPacific Economic Literature, Economic Research-Ekonomska Istraživanja and Journal of the Knowledge Economy, etc. Dr Zeeshan Khan has completed his Ph.D. degree from Curtin University Malaysia. Before this, he served as a Research Assistant at Tsinghua University China from 2017 to 2021. His research focuses on Environmental Economics, Energy Economics, International Trade, and Macroeconomics. His scholarly contributions have been featured in renowned international journals, including Energy Economics, Energy Policy, Technological Forecasting and Social Change, Technology and Society, and Resources Policy, etc. In recognition of his research excellence, Dr Zeeshan Khan ranked among the top 2% and 1% of highly cited researchers in 2022 and 2023 as well. 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