Environmental policy stringency and green finance as drivers of green innovation: Evidence from G7 economies

This study highlights the importance of environmental policies and green finance in enhancing green innovation and sustainable development. While the individual effects of environmental policy and green finance on innovation have received considerable attention, limited cross-country panel evidence exists on their combined role, particularly across the distribution of green innovation outcomes. Accordingly, this study examines the effects of environmental policy stringency and green finance on green innovation in G7 countries from 2000 to 2022. The results reveal positive relationships between environmental policy stringency, green finance, and green innovation. The findings also show that exports and GDP enhance green innovation, whereas imports have an insignificant effect. In addition, the positive effect of exports is stronger in countries with higher levels of green innovation. A robustness check based on panel-corrected regression confirms the main results. Policymakers should strategically consider environmental policy stringency and green finance to reduce environmental degradation and strengthen green innovation and overall sustainability performance.