Green finance, trade diversification, and institutional quality as catalysts for sustainable industrialization: An empirical analysis of selected Asian Belt and Road Initiative Economies

Asian economies of the Belt and Road Initiative (BRI) face growing pressure to sustain industrial expansion while meeting environmental goals, yet limited cross-country evidence exists on how green finance, trade diversification, and institutional quality jointly shape sustainable industrialization. This study empirically examines how green finance, trade diversification, and institutional quality act as catalysts for sustainable industrialization in selected Asian BRI economies. Using panel data for 30 Asian BRI countries over the 2004–2022 period, the analysis evaluates how these factors jointly shape sustainable industrialization under the dual pressures of industrial expansion and environmental sustainability. To address endogeneity and unobserved heterogeneity, we employ fixed effects models, the Kiviet-corrected estimator, and the two-step System Generalized Method of Moments. Our findings show that green finance and import diversification significantly promote sustainable industrialization, measured by the United Nations Industrial Development Organization’s Sustainable Industrial Development Index. Green finance supports a greener industrial transition by channeling resources toward environmentally sustainable technologies and investments, whereas import diversification facilitates access to clean technologies and strengthens supply chain resilience. Institutional quality amplifies these benefits, with stronger governance frameworks accelerating the implementation of green industrial policies. By contrast, export diversification undermines sustainable industrialization when it remains concentrated in resource-intensive, low value-added items, highlighting the risks associated with the “resource curse”. The findings underscore the need for integrated policy measures that combine green financing incentives, strategic trade reorientation, and institutional reform. Control variables such as gross domestic product, trade openness, information and communication technology, and natural resource endowments also shape industrialization trajectories. Overall, this study contributes to the sustainable development literature by providing empirical evidence on how financial, trade, and governance systems foster green industrial transitions. The policy implications emphasize targeted green funding, technology-oriented import strategies, anti-corruption measures, and value-added export diversification to align BRI-related economic growth with environmental sustainability objectives.