The policy gap between finance and economy: Evidence from China's green finance policy

By exploiting the quasi-natural experiment of China's pilot zone for green finance reform and innovation (PZGFRI) policy, this paper investigates how the green finance policy affects corporate total factor productivity (TFP). The multi-period difference-in-differences method shows that the policy significantly reduces enterprise TFP. Moreover, this study finds that the policy promotes the control of credit by local governments but worsens credit supply to firms and then reduces TFP. This study further adopts moderation effect estimates to show that the intensity of financial regulation mitigates the negative impact of the policy on TFP. Ultimately, we warn that a green finance policy in a developing country cannot inherently guarantee economic performance. In addition, financial regulation is critical to lessening the problem of economic inefficiency due to the green finance policy.