Environmental Science and Pollution Research (2021) 28:48053–48069

https://doi.org/10.1007/s11356-021-13828-3

RESEARCH ARTICLE

Impact of financial development and technological innovation

on the volatility of green growth—evidence from China
Jianhong Cao 1 & Siong Hook Law 1 & Abdul Rahim Bin Abdul Samad 1 & Wan Norhidayah Binti W. Mohamad 1 &
Jianlong Wang 2 & Xiaodong Yang 2,3

Received: 24 November 2020 / Accepted: 5 April 2021 / Published online: 26 April 2021
# The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021

Abstract
China’s green growth has shown a trend of fluctuation year by year. Simultaneously, Chinese local governments have pursued simple
economic growth driven by the interests of “political competition” for a long time, while the supervision of the ecological environ-
ment has been loosened and tightened. In this environment, financial development and technological innovation may easily become
the accelerator of this phenomenon, thus exacerbating the fluctuation of green growth. To deeply excavate the key factors to achieve
stable and sustained growth of green economy, based on the annual panel data of 30 provinces in China from 2011 to 2018, this paper
studies the impact of financial development and technological innovation on the volatility of green growth using dynamic system
GMM method. The findings of this paper are shown as follows: First, the expansion of financial institutions’ scale will significantly
enhance the volatility of green growth. Second, the increase in the scale of the stock market will also significantly cause green growth
fluctuations. Third, the interaction between financial development and technological innovation can significantly weaken the vola-
tility of green growth. Fourth, financial development measured by stock market indicators is more efficient than financial develop-
ment measured by financial institutions indicators to curb the volatility of green growth. Fifth, the fluctuation of green growth in the
previous period will reduce the volatility of green growth in the current period. This study provides new evidence for exploring the
power source to promote the stability and sustainable growth of the green economy in the special stage of financial and technological
integration. Controlling the development scale of financial institutions and removing their state preferences, expanding the develop-
ment of capital markets, and deepening the integration of financial development and technological innovation are conducive to
achieve stable green growth.

Keywords Financial development . Technological innovation . Green growth . Volatility . System GMM

Introduction China and most countries in the world have been exploring at
present (Capasso et al. 2019; Liu et al. 2019; Vargas-
How to eliminate the “black footprint” in the process of rapid Hernández 2020; Sun et al. 2020). Most scholars have studied
economic growth and achieve green growth is a problem that the variables that affect green growth in-depth, but if they have

Responsible Editor: Ilhan Ozturk

* Siong Hook Law Jianlong Wang

lawsh@upm.edu.my wjllovectt@126.com
* Xiaodong Yang
yxdlovezt@126.com 1
School of Business and Economics, University Putra Malaysia,
Jianhong Cao 43400 Seri Kembangan, Selangor, Malaysia
xiatiandeguoguo@gmail.com
2
School of Economics and Management, Xinjiang University,
Abdul Rahim Bin Abdul Samad
Urumqi 830047, China
abdrahim_as@upm.edu.my
3
Wan Norhidayah Binti W. Mohamad Center for Innovation Management Research of Xinjiang, Xinjiang
w_norhidayah@upm.edu.my University, Urumqi 830047, China
48054
ig no re d th e imp or tan t va ria bl e of gr ee n gr ow th
volatility? United Nations Conference on Sustainable
Development in June 2012—“Rio +20” Summit—pointed
out that the new direction of global economic development
is “developing green economy,” and the global economy
should transform to green economy development mode.
OECD (2017c) also reveals that, in the longer term, our cur-
rent pattern of economic growth rate poses a serious threat to
the foundations of our economic growth and development. As
a result, we should now take the “resilient, inclusive, and
sustainable growth path” as the optimal development policy
(OECD 2017a, b). China’s economic growth has created a
miracle since 1978, becoming the world’s second-largest
economy, but carbon emissions also rank first in the world,
almost accounting for 27.2% of global carbon emissions in
2017 according to Global Carbon Atlas1. The fluctuation of
green growth restricts the stability and sustainability of green
growth, but what are the important variables that affect the
volatility of green growth? And what is its internal
mechanism?
The objective of our research is to study the impact of finan-
cial development and technological innovation on the volatility
of green growth based on panel data from 30 provinces in China
from 2011 to 2018. Because of the strong externality of envi-
ronmental pollution and the “political competition” between
local governments, some local governments simply pursue the
GDP growth rate and provide strong financial support to some
high-pollution and high-energy-consuming enterprises (Wu
et al. 2020a; Wang et al. 2020a). The implementation of the
green growth strategy is tight in the current year and will be
loose in the next year, which weakens the sustainability of green
growth (Li et al. 2018; Chen et al. 2018; Wang et al. 2020b). In
addition, China’s financial institutions are dominated by com-
mercial banks (Zhao et al. 2019), while most commercial banks
are controlled by the government (García-Herrero et al. 2009;
Song et al. 2011), and this indirectly facilitates the “political
competition” of local governments. Moreover, this kind of fi-
nancial institution with state-owned nature has a soft credit
threshold to the state-owned enterprises and the real estate in-
dustries (Wu and Xu 2020). However, most of China’s state-
owned enterprises are traditional heavy industries that rely much
on natural resources, with a low level of technological innova-
tion and high energy consumption, as well as serious emissions
(Song et al. 2011; Hao et al., 2020a); thus, the level of resource
consumption and environmental pollution is increased.
Moreover, enterprises relying on natural resource development
will rise or reduce product prices during periods of boom or
recession greatly, causing economic fluctuations (Rongwei
and Xiaoying 2020).
1
See more detail: http://www.globalcarbonatlas.org/en/content/welcome-
carbon-atlas.
Environ Sci Pollut Res (2021) 28:48053–48069
Besides, according to data released by the People’s Bank of
China, the scale of real estate loans by financial institutions
reached 34.1 trillion yuan at the end of the first quarter of
2018, an increase of 20.07% over the same period last year,
while the total scale of loans by financial institutions was only
127 trillion yuan, and the growth rate was only 12.80%. Gross
real estate debt has surpassed 50% of the national GDP.
However, the development of the real estate industry will
consume a lot of natural resources, such as wood and water,
which account for 25% and 16% of the total global consump-
tion, respectively (Zhang 2015; Arena and De Rosa 2003).
And by 2035, global carbon emissions from the construction
industry are expected to reach 42.4 billion tons, ups 43% from
2007 (USEIA 2010), so the development of financial institu-
tions may indirectly increase resource consumption, pollution
emissions, and economic fluctuations, thus causing volatility
of green growth. The development of the financial system has
increased the credit capacity and willingness of households
and enterprises, thus may be promoting household consump-
tion of high-energy-consuming commodities under the in-
come that is known to be stable (Cai et al. 2019) and also
increasing corporate investment, thus raising the overall level
of social debt, and then may be causing fluctuations in energy
consumption, pollution emissions, and economic growth.
On the other hand, as a supplement to banking institutions,
the stock market plays an important role in economic growth
and environmental quality improvement. However, according
to the data released by the China Financial Market
Development Report (2019), the stock market in China fluctu-
ates sharply (Ahmed and Huo 2020), the reform of the stock
issue system has not made substantial progress, and the confi-
dence of investors in the market has declined, weakening the
role of the securities market in the real economy. Part of the
reasons is that most investors in the Chinese stock market enter
the stock market to buy at a low price and sell at a high price to
practice arbitrage, but a smaller proportion of investors are for
the benefit of listed enterprises dividends, and then, frequent
trading increases the volatility of the stock market. In addition,
the requirement of environmental information disclosure of
listed enterprises in the implementation of green development
strategy also has an impact on the stock market, because the
market value of many enterprises whose environmental quality
is not up to standard has fallen, thus increasing the volatility of
the stock market. The fluctuation of the stock market will not
only cause the fluctuation of the economy but also affect the
floating of resource consumption and pollution emission of
listed enterprises and pre-listed enterprises. Therefore, this pa-
per proposes hypothesis 1: Financial development will increase
the volatility of green growth.
Furthermore, technological innovation has long been
regarded as an important variable affecting economic growth
and environmental pollution (Guo et al. 2017; Zhang et al.
2020; Yang et al. 2021a). China’s technological innovation
Environ Sci Pollut Res (2021) 28:48053–48069
is still on the uphill road (Wu et al. 2020b). It has to be said
that the improvement of technological innovation level is con-
ducive to improving the production efficiency and product
quality of enterprises and providing diversified products and
services, which is conducive to dispersing the risks brought by
economic fluctuations. But technological innovation is still a
double-edged sword for environmental pollution and quality
improvement (Yang et al. 2021b). Technological innovation
does reduce the marginal cost of human resources and mate-
rial resources through improving the production efficiency of
enterprises, and the price of products will decrease, thus stim-
ulating consumer demand (Zeng et al. 2010). However, the
total demand for natural resources will be increased due to the
“rebound effect” (Herring and Roy 2007). At the same time,
when the level of technological innovation is still not very
high, the phenomenon of “brown technology” and “pseudo-
innovation” will appear, which means that enterprises adopt a
low level of technological innovation mainly for achieving
scale effect that aims to increase output, but their ability has
not yet risen to the level of green production, while for finan-
cial institutions, technological innovation mainly applies to the
financial instruments, thus further exacerbating the financial
bubble. What is more, China’s current industrial structure
and financial structure are in the transition period, and the
integration of technological innovation in the primary stage
with China’s traditional industrial structure and the system will
produce a period of friction, thus causing the shock of econom-
ic and environmental indicators. Hence, this paper proposes
hypothesis 2: Technological innovation enhances the volatility
of green growth.
In addition, according to the “financial accelerator” theory of
Bernanke and Gertler (1989), when an enterprise suffers a positive
or negative impact in the economy, its net value will rise or fall, and
the credit market can amplify the impact of this impact on the
economy and even the ecological environment. Thus, there will
be a fluctuation of economic and environmental-related indicators.
However, technological innovation can improve the efficiency of
obtaining enterprise information in the credit market (Greenwood
and Jovanovic 1990), thus reducing the financial friction, which
means that the probability of invalid allocation of resources and the
cost of external financing decrease, and the sensitivity of financial
accelerator is improved. Therefore, the improvement of techno-
logical innovation also may increase the fluctuation of economic
and ecologicalenvironment indicators by improving financial fric-
tion to a certain extent.
What is more, some scholars support that there is an inter-
action between the financial development subsystem and the
technological innovation subsystem (Bhatti et al. 2013). On
the one hand, technological innovation needs the support of
the financial sector to develop continually, but at present,
many innovation projects in China cannot be implemented
due to a lack of funds, and most technology-based SMEs are
also facing financing difficulties (Ma et al. 2019). The
48055
greening of production technology and products of enterprises
require deep innovation of management and production tech-
nologies, but the transformation from brown technology to
green technology requires more investment in R&D and labor
costs, so the strong financial support for technology may help
to reduce the volatility of economic growth and environmental
indicators caused by the shortboard of technological innova-
tion in the period of China’s economic transformation, thus
shortening the transition period of economic transformation.
We propose hypothesis 3: The interaction between financial
development and technological innovation reduces the vola-
tility of green growth. Figure 1 presents the average volatility
of green growth in 30 provinces of China during 2011–2018.
From Fig. 1, we can find that the volatility of green growth
shows a trend of the increasing year by year.
This paper is designed based on the following research
gaps: many literature has proved the existence of economic
volatility through empirical analysis (Liu 2018; Feng and
Yuan 2021), and this volatility is an important signal of eco-
nomic crisis. Severe economic fluctuations represent the in-
crease of risk factors in the process of economic operation and
also one of the factors restricting economic stability and sus-
tainable growth. Furthermore, certain scholars have conducted
extensive research on the causes of economic fluctuations, and
financial development and technological innovation are con-
sidered as important influencing factors (Ahmed and Huo
2020; Wei and Kong 2016). At the same time, a quiet number
of scholars found a close relationship between economic
growth, resource consumption, and environmental pollution
through empirical studies (Muhammad 2021; Anser 2020).
However, how do financial development and technological
innovation affect the volatility of green growth is uncertain.
Some scholars have found volatility in China’s green growth
(Lin and Zhu 2019), but there is no in-depth study on its
Fig. 1 The average volatility of green growth (VGG) during 2011–2018.
Source: Author’s drawing using Stata 16.0. (i) VGG is the volatility of
GG, and it is calculated based on moving standard deviation using Stata
16.0 by the author; (ii) GG is calculated using entropy weight method
based on the data collected from the National Bureau of Statistics of
China and National Yearbook of Environment Statistics of China
48056
influencing factors. This study is an in-depth discussion on the
sustainable and stable development of the green economy.
The contributions of this paper which devotes to the liter-
ature are provided as follows: First, after a few scholars put
forward the existence of green growth volatility, this paper for
the first time studied the impact of financial development and
technological innovation on the volatility of green growth,
which provides a reference for the study of the key factors
restricting the stability and sustained growth of the green
economy. Second, in this paper, the interaction term between
financial development and technological innovation is intro-
duced into the model as an explanatory variable to study its
influence on the volatility of green growth, thus reducing the
bias of the estimation results caused by the endogeneity of the
variables. Third, this paper also introduces the indicators of
financial institution system and stock market system to ex-
press financial development, which provides more compre-
hensive research results for current literature.
The structure of the rest paper is as follows: For the
“Literature review” section, this paper provides the literature
review. And then the “Methodology” section displays the
methodology for the research. The “Results” section reports
the regression results. Finally, the “Conclusion” section rep-
resents the conclusions and recommendations of the paper.
Literature review
The impact of financial development on economic
volatility
Most scholars have studied financial development and
economic volatility. And some of them believe that financial
development will enhance economic volatility. Dynan et al.
(2006) believe that the developed credit market reduces the
financing constraints of households and enterprises, improves
the consumption and investment ability of these market
players, and thus stimulates the volatility of the economy.
Shleifer and Vishny (2010) and Wagner (2010) argue that a
highly developed financial system may make banks have a
large number of claims, while enterprises bear too much debt
and then resulting in excessive leverage of enterprises and
increased risk to banks, thus increasing economic volatility.
Moreover, when the enterprises that over-indebted from banks
fail to fulfill their commitments, the risk of banks will be
increased, and the non-performing loan rate may increase.
What is more, when companies forecast that the future income
is stable, they will increase current or future investment, and
this may increase economic volatility (Dynan et al. 2006). In
addition, some empirical studies have verified that financial
development increases economic volatility (Levchenko et al.
2009; Zouaoui et al. 2018). Hwang et al. (2013) argued that
the opening of capital markets would exacerbate economic
Environ Sci Pollut Res (2021) 28:48053–48069
volatility in developing countries. Singh (1997) stated that
because of macroeconomic volatility, stock markets do not
lead to economic growth continually.
However, another part of scholars believes that financial
development can reduce economic volatility. Dynan et al.
(2006) suggested that increased credit can reduce the sensitiv-
ity of household and business spending during recessions.
Bernanke and Gertler (1989), Kiyotaki and Moore (1997),
Ferreira da Silva (2002), and Greenwald and Stiglitz (1993)
hold the point that a perfect financial system can reduce the
financial friction caused by information asymmetry, thus re-
ducing the volatility of total economic output. Aghion et al.
(1999), Caballero and Krishnamurthy (2001), and Acemoglu
and Zilibotti (1997) stated that the developed financial system
can moderate the impact of economic fluctuations by reducing
the financing constraints to achieve the purpose of dispersing
risks. Greenwood and Jovanovic (1990) and Acemoglu and
Zilibotti (1997) noted that financial development promotes the
diversity of enterprise financing activities, thus reducing the
total economic volatility (Charfeddine and Kahia 2019).
The impact of technological innovation on economic
volatility
In addition, certain scholars have studied the impact of tech-
nological innovation on economic volatility. On the one hand,
some of them hold that technological innovation can restrain
economic volatility. Advances have made the financial sector
more efficient in screening information for borrowers, thus
avoiding economic fluctuations caused by financial frictions
caused by asymmetric information (Dynan et al. 2006). Van
der Ploeg and Poelhekke (2009) point out that the negative
impact of economic fluctuations exceeds the positive impact
of resources on economic growth. Tian and Liu (2019) state
that the industry relying on natural resources has a great influ-
ence on economic fluctuation, because the price fluctuates
greatly with demand, which increases the volatility of local
resource income, and they believe that progress can break the
“resource curse” and achieve sustained economic growth.
Koren and Tenreyro (2013) find that progress enriches the
diversity of production input elements, thus dispersing the
impact of economic fluctuations. Chu et al. (2012) studied
the influence of intellectual property on economic fluctuation
in the USA during 1987–2007 using the quality-ladder growth
model and discrete-time model, and the result indicates that
economic volatility in the USA declined by no less than 10%
under the influence of patent protection and R&D. The reason
is that patent protection has an incentive to R&D activities,
and R&D activities promote progress, and ultimately progress
reduces economic volatility, but there is no specific explana-
tion of how progress reduces volatility. On the other hand,
some scholars suggest that technological innovation may in-
crease economic volatility (Wu et al. 2020c). The
Environ Sci Pollut Res (2021) 28:48053–48069
improvement of energy-saving technology has improved the
performance of high energy consumption commodities, such
as air conditioning, refrigerators, and other household appli-
ances, but also has stimulated consumers’ desire to buy more
such commodities, thus stimulating household consumption
expenditure and overall energy consumption, causing fluctu-
ations in the overall economy and energy consumption.
Moreover, although the improvement of innovation makes
the efficiency of financial institutions’ screening and supervi-
sion for enterprises more efficient, and thus avoids the prob-
lem of adverse selection, it fully exposes the technical and
financial weaknesses of small- and medium-sized enterprises
and emerging enterprises in the initial stage, which will lead to
higher barriers for start-ups to obtain capital (Law et al. 2018),
and then the innovation possibilities and diversity which can
spread the risk of economic volatility in the economy will be
decreased.
The impact of the interaction between financial
development and technological innovation on
economic volatility
On the one hand, some studies have found that financial de-
velopment affects economic growth by supporting innovation.
The support of financial development to innovation is mainly
reflected in the financial institutions through financial mech-
anism innovation and financial instrument innovation to meet
the financing needs of scientific and innovation enterprises.
By enriching financing options, financial institutions can not
only promote the innovation ability of enterprises in these
fields but also promote the innovation ability of the whole
country by providing financial support to the technical fields
with financing needs (George and Prabhu 2003). Besides,
rich, multi-level capital markets can improve financial effi-
ciency; however, the current level of China’s capital market
is still relatively single (Gu et al. 2007). Also, China’s finan-
cial development and innovation are incompatible. Therefore,
it is necessary for the state to establish a sound policy system
to promote the reform of the financial system, so as to broaden
the financing channels, make up for the funding gap, improve
the ability of innovation risk control, promote financial devel-
opment, support scientific and innovation efficiently, and pro-
mote economic growth (Huang and Kong 2009).
What is more, some related studies show that market-led
financial systems are conducive to innovation. On the one
hand, banks have the function of supervising financing pro-
jects, and can provide corresponding financial support accord-
ing to the progress of financing projects and capital needs,
thereby reducing the bank’s investment risk and enhancing
the flexibility of the financing cycle (Stulz 2000).On the other
hand, Tadesse and Innovation (2006) analyzed the relation-
ship between the structure of the financial system and the
progress of technology in various countries and found that
48057
the market-led financial system plays a more important role
in promoting the development of national technology than the
bank-led financial system. Therefore, the financial service in-
dustry should strengthen its support for scientific and progres-
sive and innovative industries by vigorously developing ven-
ture capital, widening the financing channels of scientific and
enterprises, as well as issuing scientific and innovation bonds
(Yao and Xia 2007). On the other hand, some studies have
found that innovation affects growth by promoting financial
development. Consoli (2005) analyzed the evolution of bank-
ing structure in Britain during the 1840s–1990s and points out
that the implementation and development of information and
communication technology (ICT) is an important factor af-
fecting the development of financial services in retail banking.
Revilla and Fernandez (2012) based on data that covers the
period 1998–2008 from Spanish manufacturing firms, using a
contingent approach to study the scale of companies and R&D
productivity under the different technological regimes, and
they have demonstrated that ICT promotes capital deepening
through production restructuring and progress.
Dynan et al. (2006) suggest that the combination of finance
and innovation improves the financial system’s ability to as-
sess risks, thereby easing financial constraints on households
and enterprises with weak mortgages. When the economy is in
recession, the capacity to borrow of companies and
households keeps them spending steady, and that is helpful
to ease economic volatility. Pradhan et al. (2018) employed
panel data from 49 European countries between 1961 and
2014, and using the vector error correction model empirically
studies the interaction between science and innovation, finan-
cial innovation, and economic growth, and the results show
that there is a long-term stable cointegration relationship be-
tween them. Xie and Ren (2017) studied the impact of finan-
cial innovation and technological innovation on economic
growth based on China’s provincial panel data that covers
the period from 2000 to 2015, and the results show that finan-
cial innovation alone can inhibit economic growth, but the
interaction between the two variables plays a significant pos-
itive role in economic growth.
The relationship between economic growth and
environmental pollution
Many scholars have studied the relationship between econom-
ic growth and environmental pollution (Shahbaz et al. 2018;
Adu and Denkyirah 2019; Wu et al. 2020a; Yang et al. 2021a;
Khan et al. 2020). Xepapadeas (1997) believes that pollution
emissions are produced with the process of production and
can be regarded as a function of output. And pollution emis-
sions are also thought to be fixed in production (Gruver 1976).
Some scholars state that economic development leads to en-
vironmental degradation (Muhammad et al. 2021). For exam-
ple, Shafik and Bandyopadhyay (1992) found that economic
48058
growth has led to an increase in carbon dioxide emissions.
Khan et al. (2020) found that economic growth has led to an
increase in carbon dioxide emissions. Because productive ac-
tivities increase economic output while also increasing pollu-
tion outputs, so there is a positive correlation between eco-
nomic growth and pollution emissions. Adu and Denkyirah
(2019) tested the existence of the environmental Kuznets
curve (EKC) through studying the nexus of growth-pollution
based on a panel dataset from 1970 to 2013 for some West
African countries with broadly consistent income levels, and
findings indicate that the openness of trade will lead to an
increase in natural resource extraction activities rather than
the introduction of green technologies, thus leading to
environmental degradation. What is more, Anser et al.
(2020) found a monotone increasing relationship between
per capita income and CO2 emissions. However, another part
of scholars believes that economic growth can improve the
quality of the environment. When a country or region’s
GDP is high enough to exceed a tipping point, social citizens
begin to demand a higher quality of life, of course, environ-
mental quality is included (Castiglione et al. 2015; Galeotti
2007). Increasing citizens’ awareness of environmental pro-
tection will reduce their exploitation of natural resources to
some extent (Adu and Denkyirah 2019).
Also, some scholars have found a close relationship be-
tween economic growth and environmental pollution through
empirical research (Shen 2006; Jayanthakumaran and Liu
2012; Choi et al. 2015; Deng 2018; Wu et al. 2020b). Saidi
and Hammami (2015) studied the impact of carbon dioxide
emissions and economic growth on energy consumption
based on panel data from 58 countries during 1990–2012,
and the results show that economic growth can significantly
and positively promote energy consumption. Khan et al.
(2020) studied the relationship between economic growth
and CO2 emission based on annual time series data in
Pakistan during 1965–2015, and they found that economic
growth will boost carbon emissions in the short and long term.
From the existing literature, many studies have proved that
financial development and technological innovation have an
important impact on economic fluctuations, and there is a
close relationship between economic growth, energy con-
sumption, and environmental pollution, but what is the impact
of financial development and innovation on the volatility of
green growth? As far as we know, at present, few scholars
combine economic growth with environmental quality indica-
tors to study the impact of financial development and
Fig. 2 Mechanisms for the
impact of financial development
and technological innovation on Financial Development
green growth
Technological Innovation
Environ Sci Pollut Res (2021) 28:48053–48069
technological innovation on the volatility of green growth.
Figure 2 shows the impact mechanism of financial develop-
ment and technological innovation on green growth.
Methodology
Model specification
To clarify the impact of financial development and technolog-
ical innovation on the volatility of green growth, this paper
constructed a dynamic panel regression model based on the
generalized method of moments (GMM). The basic form of
the model is written as follows:
Y it ¼ a þ Y it−1 þ βX it þ λZ it þ μi þ λt þ εit ð1Þ
where Yit represents the dependent variable, a is a constant
term, Yit − 1 is the first lag term of Yit,Xit denotes the core
independent variables, μi is the individual fixed effect, and
λt is the time fixed effect. εit indicates the random error item
of the model.
According to Rongwei and Xiaoying (2020), this paper
constructed the specific dynamic panel regression model as
follows:
VGGit ¼ a þ γ 1 VGGit−1 þ β1 FDit þ β2 TIit
þ β3 ðFDit  TIit Þ þ λZ it þ μi þ λt þ εit ð2Þ
where VGGit represents the volatility of green growth.
VGGit − 1 denotes the first lag term of VGGit. FDit is the main
explanatory variable of the model, indicating the scale of fi-
nancial institutes (FDS) and the scale of the stock market
(lnSTO). TI it is also the core explanatory variable,
representing technological innovation (lnTI). What is more,
in order to prevent the deviation of missing variables caused
by the mutual endogeneity of explanatory variables, we also
add the interaction items between financial development and
technological innovation (FDit×TIit) as explanatory variables
to the model. What is more, Zit denotes control variables,
including trade openness (OPEN), environmental regulation
(ER), industrialization (IND), income (INC), foreign direct
investment (lnFDI), and inflation (IFL). μi denotes spatial
specific effect, λt indicates time-specific effect, and εit is a
disturbance term.
Volatility of Green Growth
Volatility of Economic Growth Environmental Indicators
Environ Sci Pollut Res (2021) 28:48053–48069
Model estimation method
This paper uses the two-step system GMM method (Arellano
and Bover 1995; Blundell and Bond 1998) to estimate the model
to solve the endogenous problem caused by missing variables
and better examine the dynamic effects between variables.
Traditional static estimation methods, such as the least square
estimation method (OLS), cause biased estimation results by
ignoring the endogeneity of dynamic panel models (Oseni
2016). However, the GMM estimation method has different
weight matrix construction methods for heteroscedasticity and
autocorrelation of error terms in model setting and allows vari-
ables not related to error terms in the regression model to be used
as valid instrumental variables to estimate the model (Arellano
2003; Wooldridge 2002; Hao et al. 2020b). Thus, it is helpful
to solve the endogenous variable problems of the model.
Maximum likelihood estimation (MLE) and instrumental
variable (IV) are also common estimation methods for dy-
namic models. On the one hand, GMM is a simpler method
of estimation than MLE, and under large sample conditions
(time span T < individual number N), it can provide consis-
tent and progressive unbiased estimators. Moreover, the
GMM method does not need to assume the distribution of
variables nor do we need to know the accurate distribution
information of random error terms but only need to satisfy
some moment conditions according to the parameters of the
model, so as to obtain a consistent estimator. On the other
hand, the GMM estimation method complements and per-
fects the instrumental variable method (Anderson and
Hsiao 1982). When the moment conditions of the instru-
mental variables are larger than the number of parameters to
be estimated, the IV estimation method can be used to ob-
tain inconsistent estimation results, while the GMM estima-
tion can obtain progressive and consistent estimation values
(Rongwei and Xiaoying 2020).
Furthermore, this paper selects the system GMM estima-
tion method instead of the difference GMM method to esti-
mate the model. The reason is that the difference GMM is to
make the difference to the original equation, and the lag terms
of the variables are used as the instrumental variables
(Arellano and Bond 1991), which easily produced the weak
instrumental variable problems. In addition, in the process of
differentiation, the individual fixed effect is eliminated simul-
taneously with other variables that do not change with time.
Moreover, the system GMM equivalent to combining the dif-
ference equation with the original equation, the lag term of the
variable is used as the instrumental variable of the difference
equation and the original equation at the same time, so it
allows more instrumental variables to be used in the model
(Roodman 2009).
The application of the panel data is subject to the cross-
sectional (N) dimension and time series (T) dimension. If N is
greater than T, then the micro panel or short panel is used to
48059
analyze the data such as the GMM estimation in this study. If
the T is greater than N, then the time series panel methods such
as panel unit root, panel cointegration, and panel long-run
estimations are utilized in the estimation. Since this study,
the N is greater than T, and then the GMM estimation is more
appropriate to obtain the parameters. The advantages of the
panel GMM model (i) can eliminate the fixed specific effect
name in the model specification, (ii) able to handle the
endogeneity or simultaneity problem of the model (2), and
(iii) allow for the first-order serial correlation of the residuals.
This study is not using the newly developed panel data models
such as pooled mean group, cross-correlation effect mean
group (CCEMG), and augmented mean group (AMG) be-
cause these are based on the long time series data, but in this
study, the T is short. Besides, the newly developed methods
are based on heterogeneous slopes across the groups. In this
study, the provinces datasets are used, and within China and
the empirical results of GMM can represent the within China
or homogeneity. Therefore, the GMM estimation is used to
answer the objective of the study. Although the two-step sys-
tem GMM proved to be more effective than the one-step sys-
tem GMM, the standard error estimated by this method is
seriously underestimated, so it is necessary to use
Windmeijer to correct the standard error.
Variable description
The explained variable is the volatility of green growth. In
order to obtain the volatility indicators of green growth, the
entropy weight method (EWM) is used to calculate the
composite index of green growth. At present, there is no
uniform standard for the index evaluation system used in a
large number of studies on green growth. Generally speak-
ing, the green index evaluation system is divided into the
index system constructed by the relevant organizations with
comparative authority and the index system constructed by
some scholars, and the screening methods of the indicators
are divided into subjective screening and objective screen-
ing. For example, the comprehensive indicators constructed
by the OECD cover three categories: production, consump-
tion, and environment, including four related factor indica-
tors and 15 first-level indicators (OECD 2011a). United
Nations Environment Program (UNEP) constructed a set
of evaluation index systems including four dimensions of
environment, policy and happiness and equity, 14 elements,
and 39 indicators (UNEP 2012). Although this kind of in-
dex system has certain authority and representativeness, it
covers a wide variety and quantity of indicators, so it is not
fully applicable to the specific situation of a single country
or region.
With the increasing attention of scholars on green growth,
great progress has been made in the construction and
application of the green growth evaluation index system. Li
48060 Environ Sci Pollut Res (2021) 28:48053–48069

et al. (2018) and Lin and Zhu (2019) constructed the evalua- dispersion of indicators, the larger the amount of information,
tion index of green economic growth based on the data of and then its weight is bigger, but the entropy will be smaller.
prefecture-level cities in China and the non-radial distance The raw data of the index can be represented in the following
function. Wu (2018) calculated the green production efficien- m × n matrix form, where m indicates the number of evalua-
cy of coastal provinces in China from 2001 to 2012 based on tion models and n represents the number of indicators. The
the entropy weight method. Yu et al. (2020) calculated the matrix is shown as follows:
Green Environment Composite Index in Minnan coastal
regions of China based on the entropy weight method. 2 3
However, this kind of index is mainly subjective screening, x11 x12 ⋯ x1n
6 x21 x22 ⋯ x2n 7
which is easy to cause the phenomenon of repeated index X ¼6
4⋮
7 ð3Þ
information. In general, at present, scholars have no unified ⋮ ⋮ ⋮5
standard for the construction of a green growth evaluation xm1 xm2 ⋯ xmn
index system, but according to different regions combined
with the actual situation, the corresponding evaluation In order to avoid the influence of different dimension of
criteria are more accurate in practical application. indicators on the evaluation results, it is necessary to normal-
Although there are still some errors in this evaluation meth- ize the indicators first:
od, it does not affect the overall trend of evaluation results. For the positive indicators, the normalized value can be
This paper constructs the green growth index system from measured by the following equation:
the definition of green growth. Because OECD defines
green growth as “ensuring that natural assets continue to 0 xij −minxij
Xij ¼ ð4Þ
provide the resources and environmental services on which maxxij −minxij
we depend while promoting natural growth and develop-
ment” (OECD 2011b), and according to UNEP (2011),
For the negative indicators, the normalized value can be
green growth requires GDP absolute decoupling from re-
calculated by the following equation:
source consumption and environmental impacts, this paper
will select the relevant indexes from aspects of resource 0 maxij −xij
Xij ¼ ð5Þ
consumption, environmental pollution, and economic out- maxxij −minxij
put to construct the index system based on some papers
(Zheng and Chen 2007; Lin and Zhu 2019; Lv et al. 2018; And then, we need to calculate the proportion of indicator j
Fernando et al. 2019; Sun et al. 2019). The specific indica- for model i pij:
tor system is presented in Table 1:
0
xij
pij ¼ m ð6Þ
0

The specification of entropy weight method ∑ xij

i¼1

The entropy weight method is based on the discrete degree of Next, calculate the entropy value of the j indicator eij:
indicators to determine the objective weight, and it is an ob-
m
jective method of giving weight, avoiding the interference of eij ¼ −k ∑ pij 1n pij ; and k ¼ 1=1nm > 0 ð7Þ
subjective factors (Ding et al. 2016). The greater the i¼1

Table 1 Green growth index

evaluation system I II III Unite Nature

Green Growth(GG) Resource consumption Total water consumption M3 -

Energy consumption Standard coal -
Urban Construction Land Km2 -
Environmental pollution Wastewater discharge Tons -
Solid waste emissions Tons -
Industrial waste gas emissions M3 -
Economic output GDP Yuan +

Data from China’s Environmental Statistics Yearbook and the sample covers the period from 2011 to 2018
Environ Sci Pollut Res (2021) 28:48053–48069 48061

Furthermore, to calculate the weight of the j indicator wj Table 2 Descriptive statistics of variables

Variable Obs Mean Std. Dev. Min Max

1−e j
wj ¼ n   ð8Þ VGG 210 0.009 0.008 0.000 0.044
∑ 1−e j FDS 240 1.285 0.394 0.650 2.435
j¼1
lnSTO 240 10.068 1.423 6.085 13.568
lnTI 240 9.930 1.434 6.219 13.078
Finally, calculate the composite index of all Level indica- INC 240 2.913 0.932 1.499 6.803
tors z OPEN 240 0.275 0.311 0.017 1.548
0 ER 240 3.893 3.637 0.359 28.042
z ¼ ∑nj¼1 w j xij ð9Þ
IND 240 0.360 0.101 0.028 0.530
lnFDI 240 5.505 1.668 -1.171 7.722
Next, according to Rongwei and Xiaoying (2020), this pa- IFL 240 2.485 1.295 0.570 6.340
per employs the absolute value of the 2-year moving standard
deviation of green growth (GG) as the indicator of the vola- Provinces: Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia, Liaoning,
Jilin, Heilongjiang, Shanghai, Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi,
tility of green growth (VGG). Shandong, Henan, Hubei, Hunan, Guangdong, Guangxi, Hainan,
Following Yue et al. (2018) and Abbasi and Riaz (2016), Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai,
this paper selects financial institution indicators and stock Ningxia, Xinjiang. N = 30 cross-province. T = 2011–2018
market indicators to measure the level of financial develop-
ment. The main explanatory variables include financial insti-
tution development scale (FDS), stock market development Results
scale (lnSTO), and technological innovation (lnTI). Among
that, FDS is measured by the ratio of total loans of financial Results for the impact of financial development and
institutes to GDP (Liu and Song 2020; Zhang 2011), and technological innovation on green growth (VGG)
lnSTO represents the logarithmic form of stock market trade based on dynamic system GMM model
volume. Stock market trade volume refers to the value of
stocks traded in stock markets (Ikikii and Nzomoi 2013). Table 4 provides the regression results of Eq. (2) based on
lnTI represents the logarithmic form of the number of patent two-step system GMM model. In Table 4, this paper shows
applications accepted (Omri 2020; Saudi et al. 2019). Control the results of the AR(2) test and Hansen J test, which can help
variables include trade openness (OPEN), environmental reg- us judge if there exists autocorrelation in the error term and the
ulation (ER), industrialization (IND), income (INC), foreign validity of the instrumental variables. The autocorrelation test
direct investment (lnFDI), and inflation (IFL). OPEN is mea- is to ensure that there is no second-order autocorrelation, be-
sured by the proportion of total imports and exports to GDP cause based on the GMM estimation, only allows the first
(Charfeddine and Ben Khediri 2016). ER is measured by the order to be correlated but not the second order or AR(2).
proportion of total investment in industrial pollution control to Results indicate that it is appropriate for us using the dynamic
the added value of industry (Rongwei and Xiaoying 2020). panel GMM model to regress the equation, and the instrumen-
IND refers to the industrial added value as a share of GDP tal variables we used are effective. M(1) reports the results
(Yue et al. 2018). INC represents per capita disposable income about the impact of FDS and lnTI on the volatility of green
of urban residents (Acheampong 2019). Per capita disposable growth. M(2) presents the results of the impact of lnSTO and
income = (total family income - income tax paid - social se- lnTI on the volatility of green growth. Column M(1a) and
curity expenditure paid by individuals - Accounting subsi- column M(2a) provide the main results of estimation, while
dies)/family population. lnFDI represents the logarithmic column M(1b) and column M(2b) present the more robust
form of foreign direct investment (Marques and Caetano results through adding different control variables. The results
2020). IFL is calculated through the consumer price index in Table 4 show that the coefficients of the fist lag term
(CPI) (Aydın et al. 2016). Inflation=(Current CPI-Base period (L(1)VGG) of VGG are significantly negative, indicating that
CPI)/Base period CPI. For the data source, this paper employs the VGG in the previous period will restrain the VGG of the
the annual panel data of 30 provinces in China from China’s current period. The reason is that the last year’s fluctuations in
National Bureau of Statistics, China’s Environmental green growth will encourage central governments to strength-
Statistics Yearbook, WIND statistic database, and CellNet en environmental monitoring of local governments and enter-
statistics Database, and the sample period covers from 2011 prises in current year, thereby mitigating the volatility of green
to 2018. Table 2 presents the descriptive statistics of the var- growth. However, due to the characteristics of political com-
iables used in this paper. Table 3 provides the correlation test petition for GDP between local governments (Lin and Zhu
results of variables. 2019) and the externality of environmental pollution, the
48062 Environ Sci Pollut Res (2021) 28:48053–48069

Table 3 Results of the correlation test

VGG FDS lnSTO lnTI INC OPEN ER IND lnFDI IFL

VGG 1.000
FDS −0.076 1.000
lnSTO 0.489 0.011 1.000
lnTI 0.623 −0.096 0.868 1.000
INC 0.443 0.508 0.672 0.587 1.000
OPEN 0.326 0.353 0.589 0.531 0.671 1.000
ER −0.216 0.142 −0.438 −0.538 −0.203 −0.253 1.000
IND 0.098 −0.422 0.049 0.245 −0.221 −0.083 −0.325 1.000
lnFDI 0.465 −0.375 0.738 0.794 0.415 0.442 −0.493 0.263 1.000
IFL −0.038 −0.091 −0.349 −0.198 −0.178 0.182 0.039 0.111 −0.083 1.000

VGG volatility of green growth, FDS scale of financial institutes, lnSTO scale of stock market, lnTI scale of technological innovation, INC income,
OPEN trade openness, ER environmental regulation, IND industrialization, lnFDI foreign direct investment, IFL inflation

fluctuation range of green growth will increase in the next
year. This result further confirms the volatility of green
growth. Furthermore, we can learn from columns M(1a) and
M(2a) that the coefficients of FDS and lnSTO are significantly
positive, which means that the increasing scale of financial
institutions and the scale of the stock market have increased
the volatility of green growth during 2011–2018. Therefore,
hypothesis 1 is confirmed. The result is similar to Wei and
Kong (2016), who employed annual panel data in 30 prov-
inces of China in 1997–2014, and using the GMM method
studied the relationship between financial structure and mac-
roeconomic fluctuation. Results show that the stock turnover
and the loan balance/GDP of financial institutions have a sig-
nificant positive impact on macroeconomic cyclical volatility.
There is a significant positive correlation between the de-
velopment scale of financial institutions and the fluctuation of
green growth, which can be summarized as the following
reasons: First, the expansion of the development scale of fi-
nancial institutions may increase the volatility of economic
growth. The development of financial institutions at a certain
stage and a certain scale will indeed help to maintain a
country’s economic stability and play a pillar role, but once
its development scale is too large, too much capital in the
market is sucked into the financial system and cannot be ef-
fectively exported and allocated to the high-productivity mar-
ket sector, which will lead to a growing financial bubble and a
more severe financing environment for small- and medium-
sized enterprises occupying the main market (Zouaoui et al.
2018). In addition, the expansion of the scale of financial
institutions means that the financial leverage ratio in the mar-
ket will continue to rise, and the excessive debt in the market
economy sector will also increase the national economic risk,
thus exacerbating the economic turmoil. Second, the expan-
sion of financial institutions may indirectly increase the vola-
tility of resource consumption and environmental pollution.
Under the special nature of “state-owned preference,” finan-
cial institutions tend to transfer a large number of financial
resources to state-owned enterprises. Most of these enterprises
rely on natural resources, and their innovation level and en-
thusiasm are not high, which will aggravate the consumption
of natural resources and pollution emissions. In addition, the
expansion of the scale of financial institutions improves the
overall credit level of the country, including personal credit
and enterprise credit, so that they have more capital to invest
and buy high energy consumption and high pollution com-
modities, thus aggravating the volatility of economic fluctua-
tion and resource consumption and finally aggravating the
volatility of green growth.
The results show that the scale of the stock market also
increases the volatility of green growth. On the one hand, in
recent years, China’s stock market itself has shown a violent
state of volatility. The Shanghai Composite Index climbed
rapidly from around 2000 points in July 2014 to its peak of
5178.19 on June 12, 2015, and then fell sharply to the low
point of 2850.71 on August 26. The stock market shock
caused the market panic, and turbulence greatly damaged the
market confidence, aggravated the local market risk (Ma
2017). There is a significant wealth effect in the stock market,
and the stock price shock is an important factor in the short-
term economic fluctuation. Nisticò (2012) discussed the
wealth effect of the stock market by introducing an intergen-
erational overlapping model and introducing the stock market
in the model by intermediate product producer issuing stock.
On the other hand, although China’s stock market has made
remarkable achievements through continuous development
and improvement, the securities market regulators still do
not give full play to their due role. In the securities market,
there are many ineffective behaviors of supervision, such as
confusion in the issuance and management of listed compa-
nies’ stocks and funds, distortion of related financial
Environ Sci Pollut Res (2021) 28:48053–48069 48063

Table 4 Results for the impact of

financial development and M(1) M(2)
technological innovation on green
growth (VGG) (system GMM (a) (b) (a) (b)
two-step) System two-step System two-step System two-step System two-step

L(1)VGG −0.274* −0.299* −0.532*** −0.596***

(0.147) (0.155) (0.157) (0.174)
FDS 0.329** 0.287*
(0.129) (0.154)
lnSTO 0.097* 0.139***
(0.058) (0.046)
lnTI 0.060*** 0.055** 0.099** 0.137***
(0.019) (0.022) (0.041) (0.033)
FDS*lnTI −0.033*** −0.029*
(0.012) (0.016)
lnSTO*lnTI −0.395* −0.558***
(0.208) (0.161)
ER 0.001*** 0.001*** 0.0001 −0.0003
(0.000) (0.000) (0.001) (0.001)
IND −0.066** −0.065* −0.040* −0.063*
(0.026) (0.035) (0.021) (0.034)
INC 0.000 0.001 −0.014* −0.007
(0.006) (0.010) (0.008) (0.007)
IFL 0.002 0.002 −0.011 −0.013**
(0.002) (0.002) (0.007) (0.006)
OPEN −0.010 −0.043**
(0.022) (0.021)
lnFDI 0.0004 −0.001
(0.004) (0.004)
Constant −0.572*** −0.527** 0.182 0.241**
−0.195 −0.243 −0.145 −0.117
AR(2) 0.101 1.41 −0.42 −1.07
(1.64) (0.158) (0.673) (0.283 )
Hansen J (p -value) 14.49 15.28 14.99 12.09
(0.414) (0.290) (0.308) (0.357 )
Obs 180 180 180 180
Province 30 30 30 30

The robust standard errors are put in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10%
levels, respectively. The sample covers the period from 2011 to 2018. The dependent variable is the volatility of
green growth (VGG). FDS*lnTI is the interaction term between the scale of financial institutions and technolog-
ical innovation. lnSTO*lnTI is the interaction term between the scale of the stock market and technological
innovation.

information, and lag of release. The trading volume of the
secondary market fluctuates greatly, and there are prominent
problems such as the mismatch between operating perfor-
mance and price-earnings ratio (Cui 2015). These problems
have directly or indirectly induced economic fluctuations.
Besides, there are a large number of investors in the Chinese
stock market who buy high and sell low, and their frequent
stock trading further exacerbates economic volatility. The
stock market is also a platform for disclosing the environmen-
tal information of listed enterprises, so the market value of
listed enterprises will also be affected and shaken, thus affect-
ing the consumption of natural resources and pollution emis-
sions of enterprises. However, the information disclosure sys-
tem in the stock market is not perfect, which will cause finan-
cial friction and aggravate the fluctuation of economic and
environmental indicators.
48064
More specifically, we also find that the coefficient of FDS
is larger than that of lnSTO (0.329>0.099), and this means that
the development of financial institutions has a greater positive
impact on the volatility of green growth than the development
of stock markets. Part of the reason is that China’s banking
financial institutions take the dominant place of the total fi-
nancial institutions and take 25% of all, while the stock market
is only a supplement to the banking and other financial insti-
tutions, and the development in China is still in the primary
stage, so the expansion of the size of financial institutions
contributes most to the increase of the overall level of social
debt, making the leverage ratio of enterprises too high and
relaxing the financial constraints of households, then leading
to overly invest and consume in advance, thus finally stimu-
late the fluctuation of economy and resource consumption. On
the other hand, China’s financial institutions have been
expanding their assets in recent years, but most government-
controlled banking institutions have relaxed credit policies for
state-owned enterprises, and most of China’s state-owned en-
terprises belong to resource-based industries (Li and Xu,
2018); however, resource products fluctuate greatly during
the period of economic prosperity and recession, so they will
cause economic fluctuation (Rongwei and Xiaoying 2020);
Van and Poelhekke 2009). On the other hand, in the stock
market, the new over-the-counter market (New OTC
Market), small and medium enterprise board market (SME
Market), and second-board market provide more direct financ-
ing channels for medium-sized and small enterprises and sci-
ence and technological enterprises. And most technology-
based enterprises tend to produce electronic and high-tech
products, but the manufacturing procedure of electronic prod-
uct hardware is complex, the cost of products is high, and
there are few substitution products; therefore, their price fluc-
tuates little and then will decrease the effect on the fluctuations
of economic to some extent.
In Table 4, coefficients of lnTI in M (1a) and (2a) are
significantly positive, indicating that technological innovation
significantly increases the volatility of green growth. Thus,
hypothesis 2 is proved. The main reasons are as follows: ac-
cording to the new economic growth theory, technological
innovation is an important endogenous variable affecting eco-
nomic growth. However, at the stage of gradual integration of
finance and technology, the development scale of China’s
financial institutions has increased sharply, thus aggravating
the volatility of economic growth. Because the system reform
of China’s financial institutions is still incomplete, it still has a
credit preference for state-owned enterprises, but the level of
technological innovation in China still needs to be improved
at this time. In this special period, technological innovation
will help the financial system absorb more financial resources
in its internal circulation and accelerate the flow of financial
resources to lower innovation level, high energy consumption,
and high pollution production sectors, thus increasing the
Environ Sci Pollut Res (2021) 28:48053–48069
volatility of green growth. In addition, while technological
innovation has improved the productivity of enterprises to
some extent and increased the energy efficiency of high-
energy-consuming commodities, enterprises will also increase
the total amount of natural resources exploitation, and
consumers may buy more commodities to increase the total
energy consumption. Therefore, low levels of technological
innovation may increase the volatility of green growth.
However, Koren and Tenreyro (2013) and Grossman and
Helpman (1991) believe that technological innovation can
restrain economic volatility, but they did not introduce the
ecological environment variables into the model.
The coefficients of FDS*lnTI and lnSTO*lnTI in Table 4
are significantly negative, indicating that the combination of
financial development and technological innovation can sig-
nificantly reduce the volatility of green growth. So hypothesis
3 is confirmed. The reasons are financial development and
technological innovation have an impact on green growth un-
der the interaction. On the one hand, although China's techno-
logical innovation level has been greatly improved, it is still in
the climbing stage. Small- and medium-sized enterprises are
the main force of technological innovation in China, but their
technological innovation ability has been greatly curbed be-
cause of the financing difficulties. However, the financial sec-
tor’s support for R&D of such enterprises plays a role as a gas
station or magnifying glass for technological innovation in
China, enabling productivity-oriented technological innova-
tion to gradually upgrade to environmental-oriented green
technological innovation, thus enabling these enterprises to
increase productivity while improving the efficiency of natural
resources use and reducing pollution emissions. While the
enterprise environmental information disclosure system is
gradually improved, it reduces the impact on its corporate
image and product price and ultimately reduces the volatility
of green growth. On the other hand, financial friction between
the financial sector and the financing body is often caused by
information asymmetry, which leads to ineffective allocation
of resources and exacerbates the volatility of economic and
environmental indicators. The application of technological
innovation in the financial sector can improve the
information screening function of the financial sector and
reduce the volatility of green growth caused by financial
friction. More similarly, Laeven et al. (2014) through estab-
lishing a Schumpeterian model studied the interaction between
financial innovation and technological innovation of enter-
prises, and the results show that if financial innovation is not
combined in the process of technological innovation promot-
ing economic growth, the growth will eventually stop. What is
more, the interaction between stock market development and
technological innovation is more efficient in mitigating green
growth volatility, because the coefficient of lnFDS*lnTI in
M(1a) is (−0.033) greater than that of lnSTO*lnTI (−0.395)
in M(2a). Moreover, through empirical analysis, Tadesse and
Environ Sci Pollut Res (2021) 28:48053–48069 48065

Innovation (2006) found that the market-led financial system is Table 5 Results for the impact of financial development and
technological innovation on green growth (VGG) (OLS IV)
more efficient than the bank-led financial system to promote
technological progress. As the above results show, technolog- M(1) M(2)
ical innovation can increase the volatility of green growth with-
out the support of financial capital. Because superficial tech- (a) (b) (a) (b)
OLS IV OLS IV
nological innovation may be the accelerator that the financial
bubble continues to grow or the assistant that exacerbates re- L(1)VGG 0.223** 0.190** 0.233*** 0.212**
source consumption and pollution emissions, the “deep inter- (0.090) (0.089) (0.089) (0.086)
action” of financial development and technological innovation FDS 0.032*** 0.033***
is the key to promoting the sustainable development of the (0.010) (0.009)
green economy. lnSTO 0.016*** 0.011**
(0.004) (0.004)
Robust test lnTI 0.008*** 0.008*** 0.018*** 0.020***
(0.002) (0.002) (0.004) (0.005)
According to Pan et al. (2019) and Marques and Caetano FDS*lnTI −0.004*** −0.004***
(2020), trade openness (OPEN) and foreign direct investment (0.001) (0.001)
(lnFDI) are also important variables affecting economic lnSTO*lnTI −0.065*** −0.060***
growth, resource consumption, and environmental pollution.
(0.017) (0.020)
In Table 4, M(1b) and M(2b) show the regression results after
ER 0.0003** 0.0003** 0.0003** 0.0002
adding new control variables. And the results are basically
(0.000) (0.000) (0.0001) (0.000)
consistent with the main regression after adding OPEN and
IND −0.006 −0.007 −0.002 −0.008
lnFDI two variables, so our regression results are robust. In
(0.005) (0.006) (0.005) (0.006)
addition, the robustness test is carried out by replacing the
INC 0.002** 0.003*** −0.002** 0.0001
estimation method. Firstly, the Hausman test is significant at
(0.001) (0.001) (0.001) (0.001)
1% level, so the fixed effect model is more appropriate than
IFL −0.0003 0.000 −0.001 −0.002
the random effect model. And then, due to the P-values of the
(0.001) (0.002) (0.001) (0.002)
F-test are more than 0.05, so the pooled OLS method is better
Constant −0.071*** −0.077*** 0.016 0.020
than the fixed effect method. Table 5 reports the results of the
(0.015) (0.018) (0.013) (0.018)
robustness test for the main regression results of Eq. (2) based
Hausman test 102.34*** 48.52***
on pooled OLS and IV methods. The findings show that the
F-test (p-value) 0.071 0.053
regression coefficients and significance of the main explana-
tory variables are basically consistent with those in M(1a) and R2 0.241 0.515 0.266 0.505
M(2a) of Table 4, so the robustness of the results is further Obs 180 180 180 180
verified. Province 30 30 30 30

Conclusion
Based on the annual panel data of 30 provinces in China from
2011 to 2018, this paper studied the impact of financial devel-
opment and technological innovation on the volatility of green
growth by using the system GMM method. This paper pro-
vides a new direction for deeply excavating the influencing
factors of green growth and realizing sustainable green growth
and provides a new theoretical basis for China’s economic
transformation at the present stage. The findings are presented
as follows: First, the expansion of financial institutions’ scale
will significantly enhance the volatility of green growth.
Second, the increase in the size of the stock market will also
significantly cause green growth fluctuations. Third, the inter-
action between financial development and technological inno-
vation can significantly weaken the volatility of green growth.
Fourth, financial development measured by stock market
The standard errors are put in parentheses. ***, **, and * denote signif-
icance at the 1%, 5%, and 10% levels, respectively. The sample covers
the period from 2011 to 2018. The dependent variable is the volatility of
green growth (VGG). FDS*lnTI is the interaction term between the scale
of financial institutions and technological innovation. lnSTO*lnTI is the
interaction term between the scale of the stock market and technological
innovation.
indicators is more efficient than financial development mea-
sured by financial institutions indicators to curb the volatility
of green growth. Fifth, the fluctuation of green growth in the
previous period will reduce the volatility of green growth in
the current period.
Therefore, based on the findings above, this paper puts
forward the following policy recommendations: First of all,
financial institutions should reasonably control the scale of
financial development, prevent excessive financial resources
from circulating in the financial system, and cannot be reason-
ably allocated to the core production department of the
48066
market, thus reducing the efficiency of resource allocation.
Financial institutions should also “denationalize preference”
to prevent it from becoming a tool for local governments to
engage in “political competition,” that is, simply pursuing the
growth of GDP while showing a fluctuating regulatory mode
for environmental pollution control and natural resource con-
sumption. Financial institutions should increase credit support
for small- and medium-sized enterprises, innovate financial
products and financial instruments by using advanced tech-
nology, improve information screening technology, and curb
the rise of non-performing loan rate caused by financial fric-
tion, so as to reduce economic fluctuations and maintain mar-
ket stability and ultimately ensure stable green economic
growth. However, technological innovation should match
the relatively perfect financial system, so as to avoid “financial
false innovation” caused by the incomplete combination of
financial system reform and low-level technological innova-
tion, avoid blowing up the financial bubble and intensifying
the excessive exploitation and pollution discharge of natural
resources, and reduce the fluctuation of green growth and
achieve sustainable economic growth. Secondly, the govern-
ment should strengthen the supervision of the stock market,
reasonably set the access threshold of the holding market,
especially the small- and medium-sized board market and
the secondary board market, and appropriately relax the audit
mechanism for small- and medium-sized enterprises, but it
should improve the information disclosure system to avoid
the loss caused by information asymmetry. Third, the central
government should avoid using GDP only to assess the per-
formance of local governments, and the level of green growth
can be used as one of the important evaluation indicators. The
central government should further improve the environmental
information disclosure mechanism and environmental assess-
ment system of local governments and enterprises, so as to
avoid financial resources and technological innovation be-
coming the tools of its “political competition,” promote the
flow of financial resources to places where the market needs,
drive high-quality talents and advanced technology to the
matching production sector, maximize technological innova-
tion, ultimately promote the sustainability and stability of
innovation-driven green growth, reduce the environmental
burden of economic growth, and add new stimulus points to
the economy under the “new normal.”
The limitation of this study is that whether the impact of
financial development and technological innovation on the
volatility of green growth has a threshold and spatial effects
is uncertain, future scholars can study the influencing factors
of green fluctuation from many dimensions. The phenomenon
of “financial pseudo-innovation” is a special product of the
initial integration of finance and technology in China, and the
impact of this phenomenon on the volatility of green growth
can be further studied. China’s financial system reform has
always been the focus of economists’ research, and in the
Environ Sci Pollut Res (2021) 28:48053–48069
process of “denationalization,” “deleveraging,” and “diversi-
fication of financial markets,” there is still room for in-depth
study on the impact of the gradual integration of technological
innovation on the green growth in China’s economic transi-
tion period. In addition, this study is only based on Chinese
samples, and whether there are similar problems in other
countries in the world remains to be studied. These problems
are left to future research.
Author contribution Jianhong Cao: conceptualization, project adminis-
tration, formal analysis, writing (review and editing), data curation, and
writing (original draft). Abdul Rahim Bin Abdul Samad: software and
visualization. Siong Hook Law: writing (original draft), writing (review
and editing), and formal analysis. Jianlong Wang: writing (review and
editing) and validation. Wan Norhidayah Binti W Mohamad: writing
(review and editing) and validation. Xiaodong Yang: writing (review
and editing), writing (original draft), conceptualization, methodology,
funding acquisition, and supervision.
Funding The authors acknowledge financial support from the Project of
National Natural Science Foundation of China (71463057), the Project of
Natural Science Foundation of Xinjiang Uygur Autonomous Region
(2017D01C071), the key scientific research projects of universities in
Xinjiang (XJEDU2019SI003), the Silk Road Foundation of Xinjiang
University (JGSL18053), the second phase project of the School of
Economics and Management of Xinjiang University (19JGPY001), the
graduate research and innovation project of Xinjiang University
(XJ2019G005, XJ2020G020), and the party central committee’s
Xinjiang-Governance strategy theory and practice research key project
(19ZJFLZ09). The usual disclaimer applies.
Data Availability Not applicable.
Declarations
Ethics approval and consent to participate Not applicable.
Consent for publication Not applicable.
Competing interests The authors declare that no competing interests.
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