Evaluating the Role of Green Finance in Emission Reduction: Comparative Insights from Asian Economies

Abstract

This study discussed the impact of green finance on carbon emissions in China and India, two of the leading sources of greenhouse gas levels in the world. Using annual data that spans the years 2000-2024, the analysis considers the Augmented Dickey-Fuller unit root test, ARDL bounds testing approach, and a number of diagnostic tests to analyze the long and short-run relations between green finance and carbon emission. The model also has economic growth, inflation, and shadow economy as control variables in order to have a more sound understanding of emission dynamics. The empirical results suggest that, in China, the current carbon emissions are strongly determined by past emissions and inflationary pressures, while economic expansion appears to be good for the emission U-turn. In Indian country, inflation and land occupation are two important conditions for increasing emissions, and a number of socioeconomic conditions combine to mitigate pressure on the environment. The error-correction terms for both countries confirm convergence to long-run stability, i.e., deviation from equilibrium, is being gradually corrected with time. Overall, the findings imply the importance of green finance and how it can help to reduce emissions and make sustainable development a hit. The evidence would seem to suggest that targeted better policies on green investment and well-functioning financial policies can help emerging economies balance their scoring between attaining growth and environmental responsibility. These types of insights have meaning in guiding policymakers, in addition to emphasising efforts internationally related to attempting to solve the climate problems through financial innovation and sustainable economic planning.