Local Government Debt and Green Total Factor Productivity-Empirical Evidence from Chinese Cities

Area of Science:

• Environmental Economics
• Public Finance
• Regional Development

Background:

• Rising local government debt (LGD) in China poses a significant concern.
• Enhancing green total factor productivity (GTFP) is crucial for sustainable economic development and resource-environment coordination.
• Understanding the interplay between LGD and GTFP is vital for green economic transformation.

Purpose of the Study:

• To empirically investigate the impact of local government debt (LGD) on green total factor productivity (GTFP) in China.
• To examine the mediating role of green innovation in the LGD-GTFP relationship.
• To assess the moderating effect of financial market development on the LGD-GTFP nexus.

Main Methods:

• Utilized sample data from 271 Chinese cities spanning from 2010 to 2019.
• Employed empirical analysis to investigate the mechanisms linking LGD, green innovation, financial market development, and GTFP.

Main Results:

• Local government debt expansion was found to significantly suppress green total factor productivity.
• Green innovation acts as a mediator, with LGD negatively impacting GTFP by diminishing green innovation levels.
• Financial market development demonstrates a mitigating effect on the adverse impact of LGD on urban GTFP.

Conclusions:

• Strengthening local government debt governance is essential for improving GTFP.
• Optimizing the financial market environment and correcting financial resource distortions are recommended.
• Encouraging innovative financing, such as green finance and green credit, can enhance GTFP.