Charting an Economic Sustainability Path: Quantile Regression Analysis of Green Finance and Financial Development in Newly Industrialized Economies

Abstract

Sustainability, once a fringe concept, has become a central theme in global discourse, commanding the attention of governments, industries, and individuals alike. Newly industrialized countries (NICs) stand as exemplars of economies in transition, teetering on the precipice of prosperity and vulnerability. The present study aimed to chart economic sustainability through green finance and financial development in NICs. The study uses Panel Quantile Regression (PQR) and robustness analysis using annual data from 1998 to 2022. Overall, the study results indicate heterogeneity in the impacts of green finance, financial development, and foreign direct investment on the economic sustainability of NICs. The findings from the PQR unveiled that green finance contributes to economic sustainability in lower and middle quantiles (15th, 25th and 50th quantiles) while showing negative but insignificant effects in higher quantiles (75th and 95th quantiles). Financial development is proxied through three distinct variables; however, the heterogeneity in the results of all the quantiles can be witnessed. In addition, the positive and significant impacts of FDI were validated approximately across all quartiles (15–75th), but positive and insignificant effects are endorsed in the 95th quantile. Compared heterogeneous panel estimators support analogous results; however, the amplitude of their parameters varied substantially. Finally, quantile slope equality and symmetric quantiles test as robustness analysis confirmed the authenticity of the results. Therefore, this study’s empirical findings can assist policymakers in comprehending how green finance, financial development, and FDI can achieve economic sustainability and address sustainability issues.

JEL Classification F43, F65, O11, Q20