Can green credit policy promote green total factor productivity? Evidence from China

Green credit, a market-driven environmental policy instrument and an essential component of the green financial system, has piqued academic and policymakers' interest in whether it has successfully improved Chinese green total factor productivity (GTFP). Utilizing Chinese province panel data from 2006 to 2019, this study assesses GTFP using the slack-based model with the Global-Malmquist-Luenberger technique and investigates the influence of green credit on GTFP as well as its mechanism. The findings suggest green credit has a favorable influence on China's GTFP. Green credit can boost GTFP through three mechanisms: upgrading industrial structure, stimulating green innovation, and optimizing energy consumption structures. Furthermore, green credit improves GTFP in eastern regions but has little impact elsewhere; the promotion impact is more effective in financial developed regions and legal developed regions. As a result, the Chinese government should encourage regionally differentiated green credit policy implementation.