Governance and green finance: A comparative analysis of developed and developing Asian NDC economies

This study investigates how governance effectiveness shapes the influence of financial inclusion, green technology innovation, and environmental regulation on green finance across Asian economies. Distinguishing between developed and developing countries, we assess whether governance functions as an amplifier that strengthens these channels or as a binding constraint that limits their effect. The results show that in developed economies, all three drivers, financial inclusion, innovation, and regulation, exert strong and positive effects on green finance, and these impacts intensify as governance quality improves. In developing economies, by contrast, the direct effects are weak or unstable, but their interaction with governance is consistently positive, indicating that institutional capacity is the key determinant of green-finance expansion. Using panel data for 13 Asian economies from 2001 to 2023, we estimate fixed-effects models with interaction terms to capture short-run dynamics and apply panel fully modified ordinary least squares to examine long-run cointegration. Dumitrescu–Hurlin panel causality tests further assess directional predictability. Robustness checks addressing time-varying confounders, cross-sectional dependence, and post-2020 structural changes confirm the central role of governance in strengthening green-finance mechanisms. Policy simulations show that improvements in enforcement credibility, disclosure quality, and regulatory consistency generate substantial gains in green finance, especially in institutionally weaker economies.