Environmental policies stringency and cross-border banking: The mediating role of green industries

Subroto Rapih, Jorge Tavares Borges and Susantiningrum,

Finance Research Letters, 2025, vol. 74, issue C

Abstract: This study examines the impact of domestic environmental policy stringency (EPS) on cross-border bank inflows across 33 countries from 2000 to 2020. Using panel data estimation models, the results reveal that higher levels of EPS are associated with increased cross-border bank inflows. Furthermore, non-market-based EPS shows a stronger effect in attracting these inflows compared to market-based policies. Additionally, green industries in host countries partially mediate the relationship between EPS and cross-border bank inflows, suggesting that stringent EPS fosters a favorable investment climate through the promotion of green sectors. These findings highlight the crucial role of environmental regulations in shaping financial flows and resource distribution in the banking sector, offering valuable insights for policymakers aiming to attract sustainable investment.

Keywords: Environmental policy stringency; Green Industries; Cross-border bank inflows; Climate finance; Panel data analysis (search for similar items in EconPapers)
JEL-codes: F21 G21 G28 Q56 Q58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:74:y:2025:i:c:s154461232401763x

DOI: 10.1016/j.frl.2024.106734

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