Can green finance promote inclusive development? Empirical evidence from China

The inclusive development index provides a comprehensive assessment of a country's wealth and wellbeing, and recognizes that economic development should not come at the expense of depleting natural resources or neglecting human welfare. Although inclusive development assessment in China has advanced significantly at the national level, there is a noticeable absence of similar assessments at the city level. To address this gap, the inclusive development index framework is enhanced based on a dataset of 285 cities (in both urban area and rural areas) in China during 2000-2019, and the role of green finance in promoting inclusive development is empirically investigated. The asymmetric, direct, and indirect impact mechanisms of the relationship between these two variables are also investigated. The primary findings suggest that the city-level inclusive development index is constantly increasing, and green finance is positively associated with inclusive development. Second, green finance exerts an asymmetric effect on inclusive development, as it has a higher promotion effect in cities with lower levels of inclusive development. Third, six aspects of green finance, namely, green credit, green investment, green insurance, green bonds, green funds, and green trading, all contribute to increased inclusive development. Finally, green finance affects inclusive development by improving human capital and the innovation level, which are two indispensable impact mechanisms.