Does Green Finance Mitigate Environmental Degradation? Evidence on the Environmental Kuznets Curve from Upper-Middle and High-Income Countries

The study examines the effects of green finance and human development on environmental degradation using panel data of 36 upper-middle and high-income countries from 2014 to 2021. Environmental degradation is measured through ecological footprint and per capita CO₂ emissions. Key variables comprise green finance, Human Development Index, gross domestic product, population density, foreign direct investments, and natural resource rents. The Environmental Kuznets Curve hypothesis is tested to assess the non-linear relationship between economic growth and environmental quality. Panel regression models with fixed effects, Driscoll-Kraay standard errors, and wild bootstrap methods ensure robust inference. Findings provide mixed support for the Environmental Kuznets Curve hypothesis, with stronger evidence in high-income countries and limited support in upper-middle-income countries. Both green finance and human development significantly reduce environmental degradation, with green finance emerging as the most consistent policy instrument across all approaches and income groups. Natural resource rents show marginal positive associations with environmental degradation, while foreign direct investments and population density demonstrate limited effects. The study suggests that expanding green financial markets represents the most reliable strategy for environmental improvement, with income-differentiated approaches required for effective implementation. These findings offer robust policy guidance for countries seeking to balance environmental preservation with economic development.