The role of green finance in mitigating environmental degradation: Empirical evidence and policy implications from complex economies

The issue of climate change has garnered significant attention in recent years, with a growing recognition of the need to mitigate its negative impacts on the environment. However, despite the potential benefits of green finance in addressing climate change, there has been relatively little empirical work on its impact due to the lack of available data. This study aims to fill this gap by empirically analyzing the impact of green finance on the environment using panel data from thirteen complex economies from 2006 to 2020. This study employed a range of econometric techniques, including Driscoll-Kraay standard error and other robustness test models, to explore the relationships between ecological footprint, economic complexity index, green finance, technological innovations, and political risk. The study found that green finance and technological innovations effectively reduce the ecological footprint by 0.28% and 0.75%, respectively, and could help achieve a sustainable environment. However, economic complexity and political risk upsurge the ecological footprint by 0.75% and 0.78%, respectively, in the selected countries. Finally, depending on the empirical outputs, this paper suggested that governments should take action to reduce carbon footprints and protect the environment by investing in green finance projects, promoting economic diversity and technological sophistication, and creating a stable political environment.