Green finance is often viewed as being linked to sustainable growth, yet its effects may be uneven across regions with different industrial legacies. This paper examines how green finance correlates with green total factor productivity (GTFP) in China, with a focus on the country’s legacy industrial regions (broadly referred to as the “Rust Belt” in this paper), spanning Northeastern and Central China. Using a province–year panel for 30 mainland provinces over 2006–2023, we measure GTFP with a Slacks-Based Measure–Global Malmquist–Luenberger (SBM–GML) index that accounts for undesirable outputs. To reduce simultaneity concerns, we estimate two-way fixed-effects models and conduct robustness checks, including lag-based specifications; nevertheless, the observational design implies that the estimates should be interpreted as stable associations rather than definitive causal effects. We reveal a concerning stylized fact: despite rapid growth in green finance, GTFP in legacy industrial provinces exhibits a nonlinear pullback. More formally, we document pronounced regional heterogeneity: green finance is positively related to GTFP in eastern coastal provinces but negatively related to GTFP in central and northeastern legacy industrial provinces. Our findings are consistent with the theoretical prediction of an intertemporal mismatch in Schumpeterian creative destruction: standardized green-credit tightening coincides with tighter liquidity conditions for incumbent high-carbon sectors, while green entrants in these regions may scale up only gradually, leaving a temporary output and productivity “valley” during the transition. The results suggest that uniform green-finance policies may amplify transition risks in legacy industrial regions, motivating a shift from purely “green finance” toward complementary “transition finance” tools.
He et al. (2026) studied this question.