What Mediating Role Does Financial Development Have in the Global Value Chains' Environmental Sustainability Nexus in the Shadow of the Climate Crisis? Evidence From an <scp>MMQR</scp> Analysis

ABSTRACT In this study, we investigate the nonlinear effects of global value chains (GVCs) on environmental degradation and the mediating role of financial development (FD) in this relationship, while controlling for renewable energy consumption and economic growth across 10 developing countries from 1995 to 2020. In line with the study's aim, we have employed mixed‐methods quantile regression (MMQR) to address endogeneity and heterogeneity, and generalized method of moments (GMM), panel‐corrected standard errors (PCSE), and fully modified least squares (FM‐OLS) regressions for robustness checks. Our research is grounded in the conceptual frameworks of the environmental Kuznets curve (EKC) and the stochastic impacts of population, affluence, and technology (STIRPAT) model. The findings reveal that (a) there is an inverted‐U‐shaped relationship between GVCs and environmental degradation, notably at higher quantiles, meaning GVCs help control environmental degradation after a threshold level; (b) an inverted‐N‐shaped relationship between FD and environmental degradation at lower quantiles is clearer; (c) the Sobel test confirms that a high FD level mitigates environmental degradation; and (d) renewable energy prevents environmental degradation in developing countries. In developing countries, supporting green innovation and the transition to renewable energy through FD represents a significant milestone in achieving the Sustainable Development Goals (SDGs). We propose coordinated policies that reconcile participation in GVCs with FD and environmental regulations, ensuring a sustainable future for developing economies.