Financial Flows and Green Growth: Investigating the Moderating Role of Energy Consumption and Energy Transition in Asian Economies

The study investigates the influence of financial flows, measured using foreign direct investment, foreign trade (FT) and net borrowing, on green growth (GG). Energy consumption (EC) and energy transition are used as moderating variables. The theoretical framework draws support from the Pollution Halo Hypothesis and the Pollution Heaven Hypothesis. We use ordinary least squares and the system generalized method of moments for panel data, covering a time period of 28 years, from 1994 to 2021. The findings mainly suggest an adverse effect of financial flows on GG in Asia. Financial flows in the form of FT and net borrowing, although they support economic growth in Asian economies, pose environmental challenges. The findings also suggest a negative moderating role of EC in the relationship between financial flows and GG. The findings suggest that policymakers should align economic policies with environmental goals for a prosperous and sustainable ecosystem. Policies directing financial flows towards low carbon sectors and prioritizing improvements in energy efficiency can boost GG in Asian economies.