TYPE Brief Research Report

PUBLISHED 02 February 2023

DOI 10.3389/fenvs.2023.1131058

Digital finance, environmental

OPEN ACCESS regulation, and green development
EDITED BY
Muhammad Zahid Rafique,
Center for Economic Research, Shandong
efficiency of China
University, China

REVIEWED BY Yaqing Han 1,2*, Yushui Li 1,2 and Qiangqiang Wang 3

Kai Liu, 1
Shandong Normal University, China School of Finance, Fujian Jiangxia University, Fuzhou, China, 2Fujian Social Science Research Base, Financial
Suleman Sarwar, Risk Management Research Center of Fujian Jiangxia University, Fuzhou, China, 3College of Economics and
Jeddah University, Saudi Arabia Management, Fujian Agriculture and Forestry University, Fuzhou, China

*CORRESPONDENCE
Yaqing Han,
hanyaqing306@163.com

SPECIALTY SECTION
In the context of the increasingly prominent contradiction between economic
This article was submitted to development and ecological environment, how to promote green development
Environmental Economics has become the core of sustainable economic development. Digital finance is an
and Management,
a section of the journal
innovative financial model with a high degree of integration of finance and digital
Frontiers in Environmental Science technology and provides a new opportunity for achieving green development. Based
RECEIVED 24 December 2022 on identifying the mechanisms of digital finance and environmental regulation on
ACCEPTED 20 January 2023 green development efficiency, this research uses the directional distance function
PUBLISHED 02 February 2023 and Malmquist-Luenberger index to measure the green development efficiency of
CITATION 30 provinces in China from 2011 to 2020 and then employs a dynamic panel GMM
Han Y, Li Y and Wang Q (2023), Digital model to empirically analyze the relationships among digital finance, environmental
finance, environmental regulation, and
green development efficiency of China. regulation, and green development efficiency. The results of the study show the
Front. Environ. Sci. 11:1131058. following. 1) Digital finance contributes to the efficiency improvement of green
doi: 10.3389/fenvs.2023.1131058 development. 2) Environmental regulation has not yet crossed the Porter’s inflection
COPYRIGHT point and still has a dampening effect on green development efficiency. 3) The
© 2023 Han, Li and Wang. This is an open-
synergy between digital finance and environmental regulation has a positive impact
access article distributed under the terms
of the Creative Commons Attribution on green development. 4) Digital finance alleviates the financing constraints arising
License (CC BY). The use, distribution or from environmental regulation and to some extent weakens the negative effect of
reproduction in other forums is permitted,
environmental regulation on the efficiency of green development. In view of this, the
provided the original author(s) and the
copyright owner(s) are credited and that government should give full play to the active role of digital finance in eco-
the original publication in this journal is environmental governance, optimize the top-level design of environmental
cited, in accordance with accepted
regulation, and promote industrial structure upgrading and optimal allocation of
academic practice. No use, distribution or
reproduction is permitted which does not financial resources.
comply with these terms.

KEYWORDS

digital finance, environmental regulation, green development efficiency, dynamic panel

GMM model, Economic Transformation

1 Introduction
It has been more than 10 years since the United Nations proposed the concept of inclusive
finance in 2005, and the global practice of inclusive finance has completed the development
process of “microfinance—Internet finance—digital inclusive finance”. It has made an
important contribution to global financial equity and sustainable development. Digital
inclusive finance has become a new idea of inclusive financial development and an
innovative hot spot in the financial field, which meets the requirements of the digital
intelligent era. Currently, the digital wave has largely affected various fields of the
traditional economy. In addition, coupled with the sudden outbreak of the new crown
pneumonia epidemic, the financial industry has accelerated its transformation to
digitalization. Therefore, digital inclusive finance is considered as an important driver for
the green transformation of the economy (Ding et al., 2022). The 20th Party Congress report

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pointed out that promoting green and low-carbon economic and pattern, scholars are still at the preliminary stage of exploring the
social development is a key link to achieve high-quality development, impact mechanism and causal relationship between them. In order to
and achieving green development will certainly put forward higher clarify the literature related to digital finance, environmental
requirements for ecological and environmental governance. The regulation, and green development, this paper will sort out the
Global Environmental Performance Index (EPI) report jointly existing papers from the following aspects.
released by Yale University and other research institutions in First, from the perspective that digital finance affects green
2020 showed that China ranks 120th with 37.3 points, and development efficiency, some scholars stated that digital finance
environmental problems are still very serious. In order to reverse improves the financing environment, enhances corporate green
the deterioration of the ecological environment and alleviate the technology innovation, and supports green development.
outstanding contradiction between the ecological environment and Technological innovation of enterprises can improve production
economic development, President Xi Jinping announced at the efficiency and reduce environmental pollution, but enterprises need
Climate Ambition Summit on 12 Dec 2020 his solemn long-term and stable capital investment to carry out green innovation
commitment to “strive to peak CO2 emissions by 2030 and strive activities (Yu et al., 2021). However, many enterprises’ technological
to achieve carbon neutrality by 2060”, which also means that the innovation activities are constrained by financing (He et al., 2022), and
intensity of China’s environmental regulations will be further traditional financial institutions are unable to provide them with
increased (Shi F. et al., 2022). Under the constraints of intensifying sufficient financial support (Bo, 2021). Other scholars considered
environmental pollution and weak transformation of the green that digital finance has greatly reduced the threshold and cost of
economy, how to promote green development has become the core financial services by using digital technologies such as the Internet, big
importance of sustainable economic development. Environmental data, and cloud computing to provide financial services to enterprises
regulation is considered to be an important means to promote the (Ozili, 2018) and expanding the coverage of financial services (Liu
harmonious development of economy and ecology. It encourages et al., 2021). In addition, digital finance can promote the upgrading of
enterprises to change their original production methods, strengthen industrial structure by regulating the economy and optimizing
technological innovation, and improve the efficiency of resource factor resource allocation (Shofawati, 2018), thus enhancing the level of
utilization and environmental efficiency, which requires sufficient green development (Ding et al., 2022). Some other scholars found that
funds to ensure technological innovation (Chen et al., 2022a; Chen digital finance can facilitate the innovation of financial instruments,
et al., 2022b; Chen et al., 2022c). As the bloodline of the national such as green funds and green bonds (Antimiani et al., 2017; Cui and
economy, finance is an important tool for optimizing resource Huang, 2018), to promote green development. Digital finance
allocation and macro-control (Zhao and He, 2022). With the improves the efficiency of green development by creating new
widespread application of modern digital technology in the financial markets that reduce the risks faced by enterprises and the
financial sector, the new industry of digital finance has emerged social environment (Turski, 2018). Digital finance, driven by
from traditional finance with the empowerment of digital information technologies such as big data, block chain, and cloud
technology and is showing rapid development. computing, breaks through time and space limitations, enables
According to the Digital Finance Index Report released by Peking resource sharing and interoperability, and facilitates economic
University in 2021, China’s digital inclusive finance has shown a rapid green transformation and green development with the advantages
development trend in the past decade with an average annual growth of low cost, high efficiency, and wide coverage (Sun, 2020).
of 29.1% in the Digital Finance Index. Thanks to its advantages of Second, from the perspective of the impact of environmental
inclusiveness, convenience, and efficiency, digital finance has begun to regulation on green development, the impact mechanism is
reshape the pattern of economic development by expanding financing complex, and there is no unified conclusion on the relationship
channels and optimizing resource allocation. It has gradually become a between the two in the academic community. The first view sees a
new driving force leading scientific and technological innovation, positive role for environmental regulation in promoting green
driving economic and social transformation and development, and development. Environmental regulation promotes advanced
providing a new opportunity for the improvement of green industrial structure and low carbon energy consumption through
development efficiency. Green development is a concept with rich the technological innovation effect, innovation compensation effect,
connotation. It not only considers energy saving and emission and investment screening effect (Huang and Lei, 2021; Behera and
reduction, technological innovation, industrial transformation and Sethi, 2022; Fan et al., 2022), while attracting high-end green
other changes in economic growth drivers, but also involves the production technology of good quality to realize green the spillover
effect of economic growth. It pursues sustainable growth of effect, thus promoting green development. Technological innovation
environment, resources and economy (Shi Y. et al., 2022; Wang has been shown to be effective in mitigating environmental
et al., 2023; Zou et al., 2023). In the current macro-level context of degradation (Chien et al., 2021). The second view is that
tightening environmental regulations, how does digital finance affect environmental regulations have a negative impact on the efficiency
green development? What about the synergistic impact of digital of the green economy, that stronger environmental regulations lead to
finance and environmental regulation on green development higher environmental protection and governance costs, which affect
efficiency? What is the intrinsic mechanism of interaction between output efficiency and economic development (Cai and Ye, 2020; Li and
the three? An in-depth exploration of the above topics has important Ma, 2022), and that stronger environmental regulations lead to the
practical value and theoretical significance for exploring the eco- allocation of financial resources to the secondary sector, thus
economic and social benefits of digital finance. inhibiting the improvement of green development efficiency. The
Scholars around the world have presented a lot of research results third view argues that the impact of environmental regulation on
concerning the impact of digital finance and environmental regulation the efficiency of the green economy is stage-specific and non-linear
on ecological economy and society, but in the new development (Zhao and He, 2022). Porter and van der Linde (1995) proposed the

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Porter hypothesis, which states that moderate environmental following ways. First, it promotes the upgrading of industrial structure
regulation can stimulate firms to innovate in R&D and improve to promote green development (Pai, 2016). On the one hand, modern
their output efficiency through technological innovation to digital technology can be used to accurately identify green innovation
compensate for the increased compliance costs of environmental projects, guide the flow of funds to low-carbon green and high-tech
regulation (Porter and van der Linde, 1995). As the topic industries, and promote the optimization and upgrading of industrial
progressed, scholars further subdivided the study in terms of structure. On the other hand, it can stimulate green consumption
industries, regions, and environmental regulatory tools (Yin et al., demand through differentiated financial products and services, further
2022) and explored the differences in the impact of various force the transformation and upgrading of enterprises, accelerate the
environmental regulatory tools and types of industries and regions layout of green industry chain, and thus promote green development.
on green technology innovation (Feng et al., 2022). Second, digital finance helps improve the efficiency of optimal
In summary, scholars have presented rich findings on digital resource allocation and promote green development efficiency. Digital
finance, environmental regulation, and green development, but few finance has broken the “two-eight law” of the traditional financial
of them have included the interactions among digital finance, system, reshaped the financial system to a certain extent, improved the
environmental regulation, and green development into a unified accessibility of financial resources, enabled financial services to reach
analytical framework, have not yet responded positively to the the long tail of small- and micro-size enterprises and other groups
synergistic impact and intrinsic correlation between digital finance discriminated against by capital (Gomber et al., 2018; Li et al., 2020),
and environmental regulation on the efficiency of green development, optimized the distribution system, and thus enhanced the efficiency of
and have not reached a unanimous conclusion on the environmental green development. At the same time, the digital platform is used to
and economic effects of digital finance. Compared with existing continuously innovate financial products and services, broaden the
studies, this paper tries to contribute in the following three aspects: boundary of financial services, establish a bridge of interconnection
1) to identify theoretically the mechanism of digital finance, between the two sides of financial services, break through time and
environmental regulation, and their synergistic effects on green space restrictions, accurately match the demand side of the industry
development, enriching the literature on digital finance and chain, improve financing efficiency, reduce costs, effectively alleviate
environmental regulation; 2) to explore mainly how the synergistic the problem of resource mismatch (Kshetri, 2016; Dendramis et al.,
effects of digital finance and environmental regulation affect regional 2018), and provide strong financial support for the overall
green development in the context of the current situation of tightening enhancement of green development.
environmental regulation by local governments and to enrich relevant Finally, digital finance promotes technological innovation and
literature on understanding the relationship between them. improves green development efficiency. Innovation is the endogenous
Specifically, the directional distance function and Malmquist- driving force of green development. Digital finance makes up for the
Luenberger productivity index are used to measure green shortcomings of traditional finance through modern technologies
development efficiency in China, and the composite index method such as big data and artificial intelligence (Cao et al., 2021) and
is used to construct a comprehensive index of environmental provides financing services for some clean energy development,
regulation intensity, and a dynamic panel GMM model is applied environmental protection, and other technology enterprises with its
to empirically analyze the effects of digital finance and environmental highly informative and inclusive features, reducing the R&D costs of
regulation on green development efficiency.; and 3) to examine the small- and medium-size enterprises (SMEs). The promotion and
heterogeneous effects of the three dimensions of digital finance on application of new technologies by enterprises can reduce
promoting green development. The above research provides a basis for environmental pollution at the source and alleviate damage to the
government departments to formulate environmental regulatory ecological environment caused by their production activities, while
policies that are appropriate to the level of development of digital also opening up new ways to develop green production factors.
inclusive finance. Therefore, we propose Hypothesis 1.
The research arrangement of this paper is as follows: Section 2 is
the Theoretical Mechanism and Research Hypotheses, Section 3 is Hypothesis 1. Digital finance has a facilitating effect on the
Methodology, Section 4 is the empirical analysis, and Section 5 is the improvement of green development efficiency.
conclusions and policy recommendations.

2.2 The impact of environmental regulation

2 Theoretical mechanism and research on green development efficiency
hypotheses
Green development is oriented to resource conservation and
2.1 The impact of digital finance on green environmental protection and takes environmental benefits into
development efficiency account on the basis of measuring economic growth. It enhances
green development efficiency by reducing pollution emissions and
Digital finance has strong green attributes and plays an important energy inputs, and environmental regulation is an important policy
role in the process of promoting green development. Different from tool to achieve green development (Chen et al., 2022c; Zou et al.,
traditional finance, digital finance has the advantages of low cost, 2022). The impact of environmental regulation on the efficiency of
universality, and high efficiency with the empowerment of digital green development can be explained in the following ways. First,
technology such as big data and artificial intelligence, providing a new environmental regulation impacts its efficiency through the effect of
engine to promote green development and improve economic quality. technological improvement. The Porter hypothesis suggests that
Specifically, digital finance has an impact on green development in the strengthening environmental regulations will bring about an

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increase in compliance costs, but in the long run, environmental together idle funds in society through digital platforms, and under the
regulations force enterprises to innovate in technology, to improve joint action of the “visible hand” of the government and the “invisible
their production processes and technologies, to enhance the optimal hand” of the market it promotes the flow of financial resources to more
allocation of resources, to reduce pollution emissions, and to enhance long-tail groups, breaks the restriction of exogenous financing, and
green development (Ye et al., 2021; Yang, 2022). provides financial support for technological innovation and green
Second, environmental regulations affect the efficiency of green development. At the same time, environmental regulation can
development through the capital screening effect. When significantly improve environmental information disclosure, provide
environmental regulations are gradually strengthened, financial information screening for financial institutions, and promote green
institutions will gradually tend to support green enterprises or credit placement. Therefore, digital finance can alleviate the financing
projects in the supply of funds and reduce investments in high constraints arising from environmental regulations and weaken the
pollution and high energy consumption enterprises or projects. negative impact of environmental regulations on green development
This forms a fund screening effect to gradually optimize the efficiency to a certain extent, while environmental regulations promote
industrial layout and promote green development efficiency (Guo the development of digital finance to a certain extent and guide financial
et al., 2018; Song et al., 2022). institutions to explore the environmental blue ocean market. In summary,
Third, environmental regulation affects green development we propose Hypothesis 3.
through the input appropriation effect. The increased intensity of
environmental regulations forces the government and enterprises to Hypothesis 3. The interactive effect of digital finance and
invest more resources in environmental protection to reduce pollution environmental regulation has a catalytic effect on the improvement
emissions, which in turn crowd out productive and profitable of green development efficiency.
investments of enterprises, forming the encroachment effect of The influence mechanism of digital finance, environmental
environmental protection inputs. This inevitably weakens regulation and green development efficiency is shown in Figure 1.
enterprises’ green innovation and R&D efforts, reduces resource
allocation efficiency, and affects the improvement of green
development efficiency (Song et al., 2019). However, studies have 3 Methodology
found that the improvement of green development efficiency is mainly
caused by technological progress (Chen et al., 2020), and the negative 3.1 Model setting
effects of environmental regulation can be fully compensated by the
technological improvement effect (Ouyang et al., 2020). Therefore, we In order to test the intrinsic connections among digital finance,
propose Hypothesis 2. environmental regulation, and green development efficiency and to
better analyze the impact of the synergy between digital finance and
Hypothesis 2. Environmental regulation has a facilitating effect on environmental regulation on green development efficiency, this paper
the improvement of green development efficiency. adds the interaction term of digital finance and environmental
regulation to the model and centralizes this. The econometric
model is set in the following form.
2.3 Digital finance, environmental regulation,
GTFPit
α0 + ρ1 GTFPi,t−1 + ρ2 GTFPi,t−2 + β1 lndfit + β2 erit
and green development efficiency
4
+ β3 lndfit × erit +
ωi controlit + μi + εit (1)
The key to achieving green development is to improve i
1
environmental policies and systems. Local governments should not
only promote green technological innovation through environmental In Eq. 1, GTFP is green development efficiency, df is digital
regulation means and force the green transformation and upgrading of finance development index, er is environmental regulation, control is
high pollution and high energy consumption industries, but also control variables, lndfit × erit is the interaction term between digital
promote financial innovation, guide the green development of the finance and environmental regulation (interaction term centralized
local economy through green credit and green finance, and support treatment), i is provincial cross-sectional unit, t is year, μ is individual
green technological innovation and application (Zhang et al., 2022). fixed effect, ε is random disturbance term, and α, β, and ω are
The implementation of environmental regulations has placed higher parameters to be estimated. GTFPi,t−1 and GTFPi,t−2 are the green
demands on production activities. In order to meet environmental development efficiency at lag one and lag two, respectively, and are put
regulations, companies have to increase investment into research and into the model as explanatory variables. However, this creates
development (R&D) of environmental protection and pollution endogeneity problems among the model variables and also leads to
control technologies and improve production processes and autocorrelation in the model.
efficiency. While endogenous financing can alleviate some of the To solve the above problem, we use the GMM method for
financial pressure, the need for a continuous supply of funds for estimation, and the endogeneity problem can be effectively solved
technological innovation R&D and the uncertainty of short-term by introducing the lagged terms of the explanatory variables as
output make it particularly important for companies to seek more instrumental variables. First, the individual effects of the model are
external sources of financing. eliminated by doing a first-order difference for Eq. 1.
The development of digital finance provides financial support for ΔGTFPit
ρ1 ΔGTFPi,t−1 + ρ2 ΔGTFPi,t−2 + β1 Δlndfit + β2 Δerit
environmental regulation to better promote green development and
4
technological innovation. Relying on modern digital technologies such + β3 Δlndfit × erit +
ωi Δcontrolit + Δεit (2)
as the Internet, big data, and cloud computing, digital finance brings i
1

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FIGURE 1
Influence mechanism of digital finance, environmental regulation and green development efficiency.

→
The lag term still correlates with Δεit , the endogeneity problem of In Eq. 3, D0 is the distance function, x, y, and b are the input
model (2) still exists, and so further instrumental variables can be vector, desired output vector and non-desired output vector,
sought to obtain consistent estimates. Arellano and Bond (1991); respectively, g is the direction vector, g
(gy , −gb ), and β is the
Blundell and Bond (1998) propose two types of methods, differential distance function value.
GMM and systematic GMM, for regressing dynamic panel models, →t t t t t
which can effectively solve the endogeneity problem (Arellano and D0 xk , yk , bk ; yk , −btk
max β (4)
Bond, 1991; Blundell and Bond, 1998). However, the premise of ⎪
⎧
⎪
k
⎪
⎪
ztk ytkm ≥ 1 + β ytkm , m
1, 2 . . . , M
using this method is that the perturbation terms are not ⎪
⎪
⎪
⎪
autocorrelated. Therefore, we choose the differential GMM model ⎪
⎪
k
1
⎪ k t t
⎪
for testing. ⎨
z b
1 − β bt , i
1, 2 . . . , I
s.t.⎪ k
1 k ki ki (5)
⎪
⎪
⎪
⎪ k
⎪
⎪
⎪
⎪
ztk xtkn ≤ xtkn , n
1, 2 . . . , N
⎪
⎪
3.2 Green development efficiency ⎪ t
⎩ k
1
zk ≥ 0, k
1, . . . , K
measurement
In Eq. 5, ztk is the k th observation weight, M, I, and N are desired
Green development is a new model to achieve sustainable output, non-desired output, and types of input factors, respectively, t is
development by protecting the ecological environment under the the period, and so the ML index from period t to period t + 1 can be
constraints of ecological and environmental capacity and resource expressed as follows:
carrying capacity. Green development requires economic growth
→
while reducing the impact on the ecological environment, 1 + Dt0 xt , yt , bt ; yt , −bt 
ML TFPt+1 ⎣

⎡
emphasizing the mutual unity and coordinated development of the t →
two (Zhao and He, 2022; Chen et al., 2022b). The existing methods on 1 + Dt0 xt+1 , yt+1 , bt+1 ; yt+1 , −bt+1 
→
measuring green development efficiency mainly include Data 1 + Dt+10 x , y , b ; y , −b 
t t t t t

Envelopment Analysis (DEA), Stochastic Frontier Analysis (SFA), × → ⎤⎦

Total Factor Productivity (TFP), and other efficiency measurement 1 + Dt+10  x t+1 , yt+1 , bt+1 ; yt+1 , −bt+1 

methods. In this paper we use the directional distance function by (6)

considering the undesirable output and the Malmquist-Luenberger
productivity index to measure green development efficiency (Chen In Eq. 6, ML TFPt+1t greater than 0 indicates productivity
et al., 2022a). This method, proposed by (Chung et al., 1997), applies growth and efficiency improvement; ML TFPt+1 t less than
the directional distance function containing non-desired outputs to 0 indicates productivity decline. The measurement of ML
the Malmquist model to obtain the Malmquist-Luenberger index (ML productivity index requires comprehensive consideration of
index for short). The directional distance function is defined as environmental, energy, resource, and other constraints. Therefore,
follows: we include the above elements in setting the input and output
→ indicators, and the indicator selection and interpretation are
D0 x, y, b; gy , −gb 
supβ: y + βgy , b − βgb  ∈ p(x) (3) explained as follows.

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TABLE 1 Descriptive statistics of variables.

Variable type Variable Mean Standard error Min Max

Explained variables GTFP 0.815 0.116 0.485 1.123

Core explanatory variables er 0.896 0.100 0.433 1.000

df 217.246 96.968 18.330 431.930

cov 198.010 96.334 1.960 397.000

deep 212.036 98.106 6.760 488.680

cov 290.238 117.644 7.580 462.230

Control variables gdp 5.370 2.696 1.591 16.493

indus 0.410 0.081 0.158 0.620

innov 58602.22 8936.55 502 709725

green 0.396 0.035 0.279 0.491

open 0.254 0.272 0.007 1.359

1) Input indicators. Labor force, capital stock, and energy input are 3.3 Selection of indicators
used as input indicators for green development efficiency, where
labor force input is measured by the total number of employed 3.3.1 Explained variables
persons at the end of the year. Capital stock is calculated by The explanatory variable in this paper is GTFP as measured by
referring to the measurement method of Shan Haojie (Shan, MaxDEA software; i.e., green development efficiency expressed as the
2008), using the perpetual inventory method, and the annual Malmquist-Luenberger productivity index.
capital stock of each province is calculated by using 2010 as the
base period with a depreciation rate of 10.96%. The amount of 3.3.2 Core explanatory variables
energy input is expressed in terms of comprehensive energy Digital Finance (df). We choose the Peking University Digital
consumption—that is, the eight kinds of energy consumed by Inclusive Finance Index, jointly compiled by the Digital Finance
each province each year—which is converted into a uniform unit Research Center of Peking University and Ant Financial Services,
according to GB2589-2008T General Rules for Calculating to measure the level of digital finance development. The index
Comprehensive Energy Consumption to sum up the total constructs an evaluation system of digital inclusive finance in three
energy consumption of each province. The energy consumption dimensions: breadth of coverage (cov), depth of use (deep), and degree
is converted into million tons standard coal. of digitization (dig) (Guo et al., 2020), which can comprehensively
2) Output indicators. Output includes desired output and non- reflect the level of digital finance development in each province.
desired output, where desired output is expressed as the real Environmental regulation (er). Due to the diverse characteristics
GDP per capita of each province calculated in 2010 at constant of environmental regulation tools and government intervention
prices; non-desired output is measured by the total annual patterns, the measures of environmental regulation by domestic
carbon emissions and industrial triple waste emissions and foreign scholars also differ significantly. We summarize two
(i.e., three major pollution emission indicators of wastewater, types of approaches. One type is measured by using a single index,
waste gas and solid waste) of each province, where carbon including the number of inspections on the number of times
emissions are calculated according to the formula of energy enterprises discharge (Brunnermeier and Cohen, 2003), the share
in the 2006 IPCC Guidelines for National Greenhouse Gas of pollution control investment in industrial value added, or the
Inventories. The formula for calculating carbon dioxide share of pollution control investment in GDP (Berman and Bui,
emissions provided as below. 2001). Another type is to measure the intensity of environmental
regulation using a composite index, which combines the aspects of
8
8i
1 Qi × NCVi × CEFi × COFi × 44
E(CO2 )

E(C)
(7) managing wastewater, solid waste, and exhaust gas (Wang et al.,
12
i
1 2022), using the entropy value method. We choose the second
method to measure the intensity of environmental regulation by
In Eq. 7, E(CO2 ) is the total carbon emissions of eight energy replacing the single index method with the comprehensive index
consumptions, E(C) is the carbon emission of energy i, Qi is fuel method, consider the three wastes treatment, select the investment
consumption, NCVi is the net heat of energy fuel i, CEFi is the carbon amount completed in wastewater treatment, investment amount
emission factor of energy fuel i, COFi is the carbon oxidation factor of completed in waste gas treatment, and investment amount
energy fuel i, 44 indicates the molecular weight approximation of CO2 , completed in solid waste treatment as a proportion of industrial
and 12 represents the approximate atomic weight of carbon. GDP, and use the entropy method to calculate the comprehensive

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Han et al.
TABLE 2 Regression results of the dynamic panel GMM model.

Variables 1) 2) 3) 4) 5)
L.GTFP — 0.186*** 0.276*** 0.156*** 0.0389***

— (0.0203) (0.0138) (0.0197) (0.0726)

L2.GTFP — −0.334*** −0.612*** −0.335*** −0.358***

— (0.0165) (0.0164) (0.0368) (0.0736)

lndf 0.0640*** 0.0362*** 0.0262*** 0.0168** 0.057***

(0.0178) (0.0030) (0.0053) (0.0073) (0.0534)

er −0.0472** — −0.0623*** −0.0602*** −0.121***

(0.0641) — (0.0054) (0.0079) (0.0117)

lndf × er 0.253** — — 0.693*** 0.520***

(0.103) — — (0.0336) (0.0818)

lnpgdp 0.0984** — — — 0.0480**

(0.0705) — — — (0.0688)
07

indus 0.498** — — — 1.206***

(0.216) — — — (0.288)

lninnov 0.115*** — — — 0.225***

(0.0231) — — — (0.0196)

green 0.992** — — — 1.454**

(0.455) — — — (0.694)

open −0.233*** — — — −0.276***

(0.0675) — — — (0.0936)

_cons 1.916*** 1.438*** 2.034*** 1.337*** 1.830***

(0.243) (0.0319) (0.0194) (0.0287) (0.383)

10.3389/fenvs.2023.1131058
AR(1)-P — 0.042 0.033 0.043 0.031

AR(2)-P — 0.386 0.549 0.536 0.793

Sargan-P — 0.845 0.973 1.000 1.000

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N 300 210 210 210 210

Note: Values in parentheses are standard errors. *p < 0.1, **p < 0.05, and ***p < 0.01.
Han et al. 10.3389/fenvs.2023.1131058

environmental regulation index (er), which avoids the bias of the TABLE 3 Sub-dimensional regression results.
single indicator method.
Variable (1)GTFP (2)GTFP (3)GTFP

3.3.3 Control variables cov deep dif

To mitigate the estimation bias caused by omitted variables, this
L.GTFP 0.0293 0.0433 0.0909
paper combines macroeconomic theory and the variables considered
by relevant scholars in the research process (Wu et al., 2020; Zhao and (0.147) (0.0512) (0.112)
He, 2022; Zhao et al., 2022a; Zhao et al., 2022b), then selects five
L2.GTFP −0.452*** −0.248** −0.219*
indicators of economic development level (gdp), industrial structure
(indus), technological innovation level (innov), greening level (green), (0.110) (0.0967) (0.132)

and openness to the outside world (open) as control variables. er −0.204*** −0.0601*** −0.264***
Economic development and green development are closely related,
(0.0421) (0.0221) (0.0291)
and this paper expresses the level of regional economic development in
terms of real GDP per capita calculated in constant prices in 2010. lncov 0.197*** — —
Numerous studies have shown that industrial structure is one of the
(0.0350) — —
important factors affecting green development. Therefore, this paper
uses the ratio of the output value of secondary industry to GDP to lncov × er 0.326** — —

indicate the status of industrial structure. Technological innovation (0.166) — —

can effectively improve the production efficiency of traditional
lndeep — 0.0767*** —
industries, promote the progress of environmental protection
technology, improve the green manufacturing capability of — (0.0163) —
enterprises (Liu et al., 2022), and thus promote green development.
lndeep × er — 0.678*** —
This paper selects the number of domestic patent applications granted
to measure the level of technological innovation. The greening level — (0.0458) —

reflects the green development level of the region to a certain extent, lndig — — 0.126***
and this paper measures the greening level of the region by the
— — (0.0120)
proportion of the greening coverage area of the built-up area to the
total area of the built-up area. The level of external openness directly lndig × er — — 0.724***
reflects the degree of connection between a country or region and — — (0.159)
foreign regional markets, which is conducive to promoting exchanges
and cooperation among enterprises, and thus improving production controls Yes Yes Yes

efficiency and technological innovation. In this paper, we use the _cons 2.795*** 3.984*** 2.938***
proportion of total import and export trade to GDP to measure the
(0.461) (0.219) (0.343)
level of external openness. In order to narrow the scale between
variables and improve the accuracy of the test results, the values of AR(1)-P 0.018 0.036 0.040
economic development level and technological innovation level are AR(2)-P 0.432 0.903 0.449
treated as logarithms in this paper.
Sargan-P 1.000 1.000 1.000

3.3.4 Data sources N 210 210 210

Given that the Peking University Digital Financial Inclusion Index
Notes: Values in parentheses are standard errors. *p < 0.1, **p < 0.05, and ***p < 0.01.
has been measured since 2011, a total of 10 years of data from
2011–2020 is selected based on data availability. Since Tibet, Hong
Kong, Macao, and Taiwan statistics are more seriously missing, we use problem, and use STATA16.0 to estimate the impact relationship
the provincial panel data of 30 provinces as the basis for testing and between digital finance, environmental regulation, and green
analysis. The data are obtained from EPS database, CSMAR database, development efficiency. Two conditions are required for the
China Statistical Yearbook, and China Environmental Statistical application of the two-step differential GMM model: first, there is
Yearbook. Table 1 shows the definition and description of each first-order autocorrelation in the random disturbance terms, but not
variable. second-order or higher-order autocorrelation; second, there is no
over-identification of instrumental variables. The estimation results
are in Table 2. AR 1) is significant at the 5% level, but AR 2) is not
4 Empirical analysis significant, which is consistent with condition one. The Sargan test
results show that the p-value is greater than 0.1, which is not
4.1 Impact of digital finance and significant, indicating that all instrumental variables are valid,
environmental regulation on green which is consistent with condition two.
development efficiency Table 2 reports the estimation results for the full sample, where
column (1) shows the estimation results using the fixed effects model
In this paper we adopt Arellano-Bond’s approach, the dynamic and columns (2) to (5), using the differential GMM estimation method
differential GMM model, use the lagged terms of the explanatory and adding variables column by column. The results in Table 2 denote
variables as instrumental variables to solve the model endogeneity that digital finance and environmental regulation have a significant

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Han et al. 10.3389/fenvs.2023.1131058

TABLE 4 Endogeneity test: IV-2SLS. TABLE 5 Robustness tests.

Variable First stage Second stage 1) System GMM 2) Substitution of explanatory

variables
df GTFP
L.GTFP 0.289*** L.GTFP 0.558***
Internet penetration rate 0.0265*** —
(0.099) (0.062)
(0.0031) —
L2.GTFP −0.768*** L2.GTFP −0.660***
df — 0.0994***
(0.074) (0.067)
— (0.0314)
lndf 0.194*** lndf 0.184***
controls Yes Yes
(0.029) (0.045)
Adj-R2 0.714 0.821
er −0.174*** er1 −0.044***
N 300 300
(0.016) (0.008)
Notes: Values in parentheses are standard errors. *p < 0.1, **p < 0.05, and ***p < 0.01.
lndf × er 0.582*** lndf × er1 0.331***

(0.142) (0.081)
impact on green development efficiency, indicating that digital finance
controls Yes controls Yes
and environmental regulation play an important role in the green
development process. _cons 0.103*** _cons 3.111***
Considering the problem of “tightening 1 year and loosening the
(0.273) (0.820)
other” in the implementation of environmental regulatory policies and
institutions, the model is estimated using the lagged one-period and AR(1)-P 0.037 AR(1)-P 0.005
lagged two-period green development efficiency as instrumental AR(2)-P 0.278 AR(2)-P 0.178
variables, as shown in Table 2. The coefficient of green
Sargan-P 1.000 Sargan-P 1.000
development efficiency of the first lag is significantly positive in the
current period, which means that the green development efficiency of N 240 N 210
the previous period has a significant effect on the green development Notes: Values in parentheses are standard errors. *p < 0.1, **p < 0.05, and ***p < 0.01.
efficiency of the current period. In contrast, the green development
efficiency of the second-period lag has a significantly negative impact
on the green development efficiency of the current period, which consumption demand and promotes the transformation and
means that the green development efficiency of the second-period lag upgrading of green industries. Green consumption and green credit
inhibits the green development efficiency of the current period. This stimulate residents’ demand for environmentally friendly products,
indicates that the improvement of green development efficiency in the spur industries to upgrade to green and environmental protection,
previous period improves the ecological environment. However, due improve the virtuous cycle of economy and environment, and
to the implementation of environmental regulation policies with a promote green development.
certain lag, environmental regulation has not yet shown its impact The effect of environmental regulation (er) on green development
effect, and the government chooses to continue to implement the efficiency is significantly negative, which implies that environmental
environmental regulation policies in the previous period. Moreover, regulation has a negative effect on the improvement of green
green development efficiency in the second lag has a suppressive effect development efficiency, which runs contrary to Hypothesis 2. The
on the current period, which means that the high intensity of empirical findings indicate that the impact of environmental
environmental regulation suppresses the green development regulation has not yet crossed the Porter’s inflection point; i.e., the
efficiency, and due to the competitive pressure, the government has negative effect of compliance cost brought by environmental
to choose to relax the intensity of environmental regulation and regulation to enterprises has not yet jumped to the technological
increase economic output, so as to win the competition among innovation compensation positive effect. The possible reason is that
governments. China’s environmental regulations are mostly based on emission
The effect of digital finance (df) on green development efficiency is constraints and pollution control, forcing enterprises to increase
significantly positive, which indicates that the development of digital pollution treatment and ecological protection expenditures, but
finance has a significant contribution to local green development China is also mainly a heavy industry and manufacturing economy
efficiency. Thus, Hypothesis 1 is supported. Digital finance has that is subject to high levels of environmental regulations and large
strong green attributes, and its natural advantages of inclusiveness, compliance costs. Only proper environmental regulations can
efficiency, and convenience play a positive role in the process of promote enterprises to improve energy efficiency, innovate
enhancing green development efficiency. On the one hand, digital production processes and environmental protection technologies,
finance expands the boundary of financial services with modern digital and continue to play the innovation compensation effect in order
technology, improves resource allocation efficiency, accurately to enhance the efficiency of green development.
identifies green projects through technical screening function, and The synergistic effect of digital finance and environmental
directs resources to high-tech and innovative environment-friendly regulation (digital finance and environmental regulation interaction
enterprises, thus increasing environmental benefits as a “blood term df*er) on green development efficiency is significantly positive,
transfusion” for enterprises. On the other hand, it stimulates green which indicates that the interactive effect of digital finance and

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Han et al. 10.3389/fenvs.2023.1131058

environmental regulation has a positive impact on green development that the instrumental variables can be effectively identified.
efficiency improvement. Thus, Hypothesis 3 is supported. Digital Furthermore, the Keilbergen-Paap rk LM statistic is used to test
finance can alleviate the financing constraints arising from the validity of the instrumental variables. In the Keilbergen-Paap rk
environmental regulations and to a certain extent weaken the Wald F-statistic for weak instrumental variables test, the results show
negative impact of environmental regulations on green that the value of the statistic is greater than the critical value of
development efficiency. Local governments also need to use digital 19.93 for Stock-Yogo at the 10% significance level, indicating that
finance to guide the flow of resources and support the innovation and there are no weak instrumental variables. The results in Table 4
application of production technology and pollution control indicate that digital finance can still significantly improve the
technology when using environmental regulations to push efficiency of green development after accounting for endogeneity
enterprises to green transformation and upgrading. Therefore, the issues.
synergy between digital finance and environmental regulation can
effectively improve the efficiency of regional green development.
4.4 Robustness test
4.2 Analysis of the impact of interaction To test the robustness of the model estimation results, this paper
between sub-dimensions of digital finance uses the systematic GMM estimation method and substitution of core
and environmental regulation on green explanatory variables to test the robustness of the above findings.
development efficiency
1) Systematic GMM method. Compared with differential GMM, the
To further explore the impact of the interaction between the advantage of systematic GMM is that it can improve the efficiency
dimensions of digital finance and environmental regulation on the of estimation and reduce the estimation error. Therefore, this paper
efficiency of green development, this paper estimates the three sub- uses the systematic GMM model to conduct robustness tests on the
dimensions of digital finance. The results appear in Table 3. As can be data, as shown in Table 5(1). The test results are consistent with
seen from the table, all three dimensions of digital finance are those of the differential GMM model.
significant at the 1% level with positive coefficients, indicating that 2) Replacement of core explanatory variables. In order to test the
the breadth of coverage, depth of use, and digitization of digital finance robustness of the results, this paper adopts another method to
significantly enhance green development efficiency. In terms of the measure environmental regulation and selects the proportion of
magnitude of the coefficients, the degree of influence of the three sub- industrial pollution control investment to GDP to measure the
dimensions on green development efficiency is: breadth of coverage > intensity of environmental regulation in each province. The results
digitalization > depth of use. The intensity of environmental of the robustness test by the above method are basically consistent
regulation has a negative effect on green development efficiency, with a previous paper, which indicates that the empirical results of
but its interaction with the digital finance sub-dimension has a this study are robust and reliable.
significant positive effect on green development efficiency.

5 Conclusion and policy

4.3 Endogenous discussion recommendations
An underlying assumption of the above analysis is the premise Based on identifying the mechanisms of digital finance and
that digital finance is an exogenous variable. Although this paper uses environmental regulation on green development efficiency, this
a dynamic panel GMM model to reduce the problem of endogeneity research measures green development efficiency using the
among variables, there is still reverse causality leading to endogeneity directional distance function and Malmquist-Luenberger index
bias in the model estimation process. Therefore, this paper uses the based on 30 provinces’ panel data in China from 2011 to 2020.
Durbin-Wu-Hausman test for endogeneity of the core explanatory The relationship among digital finance, environmental regulation
variables. The test results show that the p-value is less than 0.05, and and green development efficiency is empirically analyzed through a
digital finance is considered as an endogenous variable. In order to dynamic panel GMM model. The main findings are as follows. 1)
avoid the reverse causality of “the higher the efficiency of green Digital finance and its three sub-dimensions have a catalytic effect on
development, the higher the degree of access to green financial the improvement of green development efficiency. 2) Environmental
resources and even digital financial development,” in this paper regulation has not yet crossed Porter’s inflection point and still has a
we use the Internet penetration rate as an instrumental variable suppressive effect on green development efficiency. 3) The interaction
and adopt the 2SLS method to correct for the endogeneity of the between digital finance and environmental regulation has a positive
model. effect on the improvement of green development efficiency. 4) The
After controlling for the level of regional economic development, interaction between digital finance and environmental regulation has a
industrial structure, technological innovation, greening level, and positive impact on the improvement of green development efficiency,
openness to the outside world, there is no direct correlation indicating that digital finance can alleviate the financing constraints
between Internet penetration rate and green development, which arising from environmental regulation and to some extent weaken the
satisfies the requirement of exogeneity. The use of instrumental negative effect of environmental regulation on green development
variables needs to be tested for validity. First, the Keilbergen-Paap efficiency.
rk LM statistic is used for the non-identifiability test, and the result Based on the above research findings, we propose the following
shows that the value of the statistic is 51.639 (p = 0.000), indicating policy recommendations.

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Han et al. 10.3389/fenvs.2023.1131058

1) Give full play to the active role of digital finance in ecological and supervising the R&D and application of low-carbon
environmental governance. First, the government should rely on technologies is beneficial for China to seize the high point of
modern digital technology to accurately screen green, clean, and future world green market competition and lead the trend of low-
environmental protection enterprises and projects, guide financial carbon economic development in the world.
resources to high technology, high value-added, and other green
industries, appropriately finance high pollution and high energy
consumption enterprises, accelerate the layout of the green Data availability Statement
industry chain, and force the green transformation and
upgrading of industries. Second, the relevant authorities should The original contributions presented in the study are included in
pus to build a diversified digital financial platform, carry out digital the article/Supplementary Material, further inquiries can be directed
financial service model innovation, integrate social idle funds, give to the corresponding author.
full play to the optimal allocation of resources in environmental
protection, break the stratification of financial resources mobility,
and make reasonable use of the government’s “visible hand” and Author contributions
the market’s “invisible hand”. Third, efforts should be geared to
giving full play to the optimal allocation of resources in YH: conceptualization, software, resources, writing—original draft
environmental protection, breaking the stratification of financial preparation, conceptualization, methodology, data curation; YL:
resource liquidity, building a government-market dual-track validation, investigation; QW: validation, validation,
parallel mechanism, and promoting the synergy of digital writing—reviewing and editing, supervision. All authors have read
finance and environmental regulation to promote green and agreed to the published version of the manuscript.
development.
2) Optimize the top-level design of environmental regulation and
establish a reasonable, scientific, and flexible environmental Funding
regulation system. First, China should formulate differentiated and
diversified environmental regulation policies according to local This work was supported by the Major Project of Fujian Provincial
conditions. There are significant regional differences in the impact Social Science Foundation Base “Research on the formation, effect and
of environmental regulation on the efficiency of green development, prevention and control of financial resource mismatch risk in the context
and the country should combine the characteristics of economic and of financial technology” (Project No. FJ2020MJDZ051); Fujian Provincial
environmental resource endowments of each region to formulate Department of Education Young and Middle-aged Teachers Project
environmental regulation policies that are compatible with the (Social Sciences)“Performance Evaluation and Optimization Path of
characteristics of industries. Second, the government should Economic Transformation in Fujian Province under the Goal of High
improve every detail of environmental regulations from their Quality Development” (Project No. JAS19208); Project from Research
introduction to their implementation to avoid the phenomenon of Center for Targeted Poverty Alleviation and Poverty Relapse Prevention,
“loud thunder but little rain” in their implementation. At the same Ningde Normal University “Study on the Path of Digital Economy to
time, the process of implementing environmental regulation policies Promote Effective Linkage between Poverty Alleviation and Rural
should also avoid brutal policy implementation methods such as “one Revitalization in Fujian” (Project No. JXH2022086).
size fits all” and “one stop”. Third, to reduce the frequency of
environmental regulation policy adjustment, some regions in the
pursuit of economic development of environmental regulation have Acknowledgments
implemented a policy of “a year tight and a year loose”, resulting in
serious slowdown of the green development process. Thus, local The authors are grateful to the editor and the reviewers of this
governments should develop a long-term environmental regulation paper.
system and implement strict and appropriate intensity of
environmental regulation, in order to play a positive role of
environmental regulation on green development efficiency. Only in Conflict of Interest
this way can environmental regulations really exhibit a positive role in
the efficiency of green development. The authors declare that the research was conducted in the
3) Actively encourage and support the R&D and application of absence of any commercial or financial relationships that could be
green innovative technologies in enterprises to provide construed as a potential conflict of interest.
endogenous drive for green development. The authorities
should tighten the direction of green and low-carbon
development, set up advanced green and low-carbon Publisher’s Note
technology R&D teams, break down technical barriers,
increase support for R&D of key core technologies, promote All claims expressed in this article are solely those of the authors
the output and application of low-carbon technology and do not necessarily represent those of their affiliated
achievements, and promote the process of green development. organizations, or those of the publisher, the editors and the
The global trend is low-carbon transition, low-carbon reviewers. Any product that may be evaluated in this article, or
development capability, and advanced low-carbon technology, claim that may be made by its manufacturer, is not guaranteed or
which represent international competitiveness. Therefore, endorsed by the publisher.

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Han et al. 10.3389/fenvs.2023.1131058

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