Financial inclusion and green economic efficiency: evidence from China

Financial inclusion is crucial to a country’s competitiveness while green economy emerges as a policy priority along the sustainable development path, but how will they interact? This study examines the relationship between the two in the context of China, which is on the transition to a green economy based on city level data for 2011–2015. A multidimensional measurement of financial inclusion is established by considering the rapidly developing digital finance, and the measurement of green economic efficiency by applying the MinDW model. Results indicate that the development of financial inclusion can enhance green economic efficiency, which is mainly realized through the strengthening of the credit constraints on high-polluting firms. The findings provide further implications for implementing a financial development policy and maintain a balanced relationship between the government, financial institutions, and firms.