Financial Policy, Green Transition and Recovery after the COVID-19

49 Pages Posted: 1 Nov 2020 Last revised: 18 Jan 2022

See all articles by Dongyang Pan

Dongyang Pan

Renmin University of China; Central University of Finance and Economics (CUFE); University College London

Chuanqi Chen

Central University of Finance and Economics (CUFE)

Michael Grubb

University College London

Yao Wang

Central University of Finance and Economics (CUFE)

Date Written: February 22, 2021

Abstract

The published version of this paper (in Chinese, 中文版) can be found at http://www.jryj.org.cn/CN/abstract/abstract969.shtml.

Public policy that acts on financing activity - referred to here as “financial policy” - can play an important role in supporting the green transition and recovery of the economy. This research studies the specific role of financial policy, the mechanism of support, and how financial policy can be coordinated with other public policies that encourage the green transition, particularly in the recovery period after the COVID-19 pandemic. The method we employ is a macroeconomic growth model with “directed technical change”, the natural environment, and financial features. It is found that (1) financial constraints are non-trivial in the economy and could delay the green transition if no additional policy is introduced. (2) Financial policy directionally supporting the green economic sector can facilitate the green transition and help stop the environmental degradation. (3) A financial policy can bring effects similar to some other policies in supporting the green transition. Compared with related policies, financial policy has certain advantages and disadvantages. There is a clear theoretical rationale to combine financial policy with other policies to save cost and improve the effect. (4) A green recovery after the COVID-19 shock can be realised with an appropriate mix of financial policy and other related policies. The post-pandemic period offers a window of opportunity to hasten the green transition. These findings not only justify the desirability of the currently popular “green financial policy”, show the way of policy conduction and coordination, but also reveal the special value of such policy after the COVID-19 if we want to accelerate the “green recovery”.

Keywords: Green Financial Policy, Transition, Green Recovery, COVID-19

Suggested Citation

Pan, Dongyang and Chen, Chuanqi and Grubb, Michael and Wang, Yao, Financial Policy, Green Transition and Recovery after the COVID-19 (February 22, 2021). Available at SSRN: https://ssrn.com/abstract=3719695 or http://dx.doi.org/10.2139/ssrn.3719695

Dongyang Pan (Contact Author)

Renmin University of China

Haidian
Beijing
Beijing, Beijing 100872
China

Central University of Finance and Economics (CUFE)

39 South College Road
Haidian District
Beijing, Beijing 100081
China

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Chuanqi Chen

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Michael Grubb

University College London

Gower Street
London, WC1E 6BT
United Kingdom

Yao Wang

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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