Research on World Agricultural Economy

Pathways to Green Growth: The Role of Green Finance in Developed and Developing Countries

Tuyet Nguyen Thi Bach

Faculty of Finance and Accounting, Lac Hong University, Tran Bien Ward, Bien Hoa City 810000, Vietnam

DOI: https://doi.org/10.36956/rwae.v7i2.2076

Received: 29 April 2025 | Revised: 24 June 2025 | Accepted: 25 June 2025 | Published Online: 8 June 2026

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Abstract

This study examines the dynamic relationship between green finance and green growth across 11 developed and 41 developing countries from 2005 to 2022. Green finance is measured using four key indicators: credit for agriculture, credit for renewable energy, public R&D spending on renewable energy, and public R&D spending on environmental protection. Green growth is represented by green GDP, which is proxied through adjusted net savings—calculated by combining net national savings and education expenditure, while subtracting energy, mineral, and forest depletion, as well as carbon dioxide emissions. Using a panel vector autoregression (PVAR) model, the study investigates how green finance affects green growth over time. The results show a clear divergence between country groups: in developed countries, green finance has a positive and stable impact on green growth. In contrast, in developing countries, the effect is more volatile and sometimes negative, likely due to weaker institutional capacity, inadequate policy frameworks, or inefficient allocation of green finance. These findings highlight the need for differentiated policy responses. Developing countries should focus on building robust legal and institutional foundations—such as implementing green taxonomies, enforcing mandatory environmental disclosures, and establishing standardized green bond regulations—to improve transparency and attract sustainable investment. Meanwhile, developed countries are encouraged to strengthen carbon pricing mechanisms, phase out fossil fuel subsidies, and provide stronger incentives for investments in renewable energy and clean technologies. Tailoring green finance policies to each country's context is crucial for supporting long-term sustainable development and environmental resilience.

Keywords: Green Finance; Green Growth; PVAR

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