Casual and Dynamic Linkage Between Economic Growth and Green Financial Development in Pakistan

Abstract

Economic growth and green financial development association has gained a very high concentration in the developed economies. However, developing countries are less focused on this phenomenon because these economies are less financially developed, and Pakistan is no exception. This study aimed to estimate the causal and dynamic relationship between Pakistan’s economic growth and green financial development. The study used time-series data from 1990 to 2022 regarding green financial development and economic growth. The outcome of the present study identified that the long and short-term association exist between economic growth and green financial growth. Further, this study examined economic growth, green credit, securities, insurance, investments, foreign direct investment, green production, and green employment. Multivariate and bi-variate co-integration results indicate that economic growth has a long-run significant relationship with all these parameters; however, granger causality results indicate that economic growth leads to FDI (foreign direct investment) and green production leads to economic growth. However, green securities lead to green investment, and green energy leads to green production. Green Insurance and Green Energy have bilateral causality. Green employment leads to green insurance, investment in green jobs, and green energy in green production. Long-run and short-run causal and dynamic linkage exist between economic growth and other green parameters.