Green finance and joint urban performance in pollution control and carbon mitigation: evidence from the Yangtze River Economic Belt, China

Abstract

Pollution control and carbon mitigation often involve the same energy inputs and production processes, yet the role of finance in shaping their combined urban outcomes remains insufficiently understood. Using panel data for 110 Chinese cities in the Yangtze River Economic Belt (YREB) from 2010 to 2023, this study examines the relationship between green finance (GF) and joint pollution and carbon reduction performance (JPCRP), while JPCRP is measured using an outcome-based composite index covering carbon emissions, energy use, and conventional pollution. The empirical analysis combines city and year fixed effects with two stage least squares, indirect path, interaction, and panel threshold models. The results show that GF is positively associated with JPCRP, while exploratory subgroup estimates vary in magnitude across basin locations and development levels. Specifically, the fiscal expenditure analysis identifies a countervailing pathway in which GF is positively associated with fiscal environmental expenditure (FEE), while FEE is negatively associated with JPCRP after controlling for GF and the other covariates. Green technological innovation (GTI) conditions the relationship between GF and JPCRP, with the negative GF × GTI interaction indicating that the marginal association between GF and JPCRP becomes weaker as GTI increases. The estimated threshold for urban spatial development efficiency (USDE) is 0.66, above which the GF coefficient remains positive but declines from 0.1412 to 0.0845. These findings indicate that the environmental contribution of GF depends not only on the supply of green capital but also on fiscal allocation, technological capacity, and urban spatial conditions.