Does green finance promote environmental sustainability equally across Asia? The moderating role of government effectiveness

Abstract

This study investigates whether the link between green finance and consumption-based CO₂ emissions differs when considering the conditional emissions distribution and whether government effectiveness conditions this relationship. Annual data for 18 Asian economies from 2003 to 2023 are analysed using the Method of Moments Quantile Regression, while Bootstrap Quantile Regression is used as an alternative estimator check. Consumption-based CO₂ is viewed as an inverse measure of environmental carbon sustainability. The green finance coefficients are statistically significant at all reported quantiles and negative in the baseline model, ranging from -0.102 at Q25 to -0.111 at Q90. The relationship between green finance and government effectiveness is also negative and significant, ranging from -0.150 to -0.223. The results suggest that the negative green finance–emissions correlation becomes stronger as government effectiveness increases and is most significant at the higher quantiles of conditional emissions. Generally, information and communication technology is associated with decreased emissions, whereas economic growth and trade openness are associated with increased emissions. The main coefficient signs and the increasingly negative interaction pattern are maintained in the bootstrap estimates. The results indicate that institutional implementation capacity partially influences the environmental performance associated with financial resources for greening. The empirical analysis is not fully exogenous; therefore, its results cannot be interpreted as demonstrating a cause-and-effect relationship.