The economic impact of green finance in Saudi Arabia: A dynamic panel econometric analysis (2015–2024)

Abstract

Green finance has shifted from a peripheral environmental concern to a central instrument of economic transformation in resource-dependent economies. This study examines the economic impact of green finance in Saudi Arabia over the period 2015–2024 using a dynamic panel framework based on twelve economic sectors observed annually. Four outcomes are modelled separately: real economic growth, non-oil economic growth, employment, and carbon intensity. The two-step system generalized method of moments (GMM) estimator addresses dynamic persistence, unobserved heterogeneity, and the endogeneity of green finance. The results indicate that green finance is positively and significantly associated with real and non-oil growth and employment, and negatively associated with carbon intensity, with the diversification channel emerging as the strongest. Both moderators strengthen the growth-enhancing and emission-reducing effects of green finance, implying that the macroeconomic payoff to sustainable finance is conditional on the surrounding institutional and financial architecture. The findings survive a range of robustness checks, including the difference GMM estimator, an alternative green-finance proxy, and fixed-effects estimation. The study contributes a sector-level, theory-grounded econometric assessment of green finance in a Gulf economy pursuing diversification and decarbonization simultaneously, and it offers concrete guidance for sequencing green-finance policy under Vision 2030.