Does financial policy alignment accelerate sustainable transport transitions in Europe?

Bin Zhou (), Xinyu Wang (), Adrian Cantemir Călin () and Teodora Daniela Albu ()
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Bin Zhou: School of Buissness，Xinxiang University，Xinxiang，453003，P.R.China
Xinyu Wang: School of Economics and Management，North China University of Technology，100144，P.R.China. (Corrosponding Author)
Adrian Cantemir Călin: Bucharest University of Economic Studies, “Victor Slăvescu” Centre for Financial and Monetary Research, Romanian Academy
Teodora Daniela Albu: Centre for Economic Information and Documentation, Romanian Academy

Journal for Economic Forecasting, 2025, issue 3, 128-145

Abstract: The current study examines the role of green finance (GFN) in reducing transport-related CO₂ emissions and improving transport performance across 25 European countries. The time period considered for this analysis spans from 2000 to 2022. The study utilized a two-way fixed-effects model and addressed potential endogeneity concerns through instrumental variable estimation. Robustness of the findings was further verified using CS-ARDL, PMG, and CCE estimators. By doing so, the current study establishes credible short-run and long-run effects. The results show that GFN significantly lowers transport CO₂ intensity (FE baseline elasticity = −0.081; IV/2SLS confirms robustness) and improves performance, with long-run effects (−0.215) stronger than short-run effects (−0.098). Interaction terms indicate that financial liberalization (FL), environmental taxes (ETAX), and SDG progress strengthen the effectiveness of GFN. Moreover, heterogeneity analysis reveals larger gains in high-capacity economies with deeper financial systems and stronger institutions. Policy simulations further indicate that a 10% rise in GFN reduces transport emissions by 2.3% in high-capacity economies, compared to 1.1% in lower-capacity economies, with even larger reductions when combined with FL. These findings highlight the importance of aligning financial reforms and environmental policies to accelerate sustainable transport transitions in Europe.

Keywords: Green finance; Transport performance; CO₂ emissions; Financial liberalization; Sustainable development; Environmental policy (search for similar items in EconPapers)
JEL-codes: O44 Q53 Q54 Q58 (search for similar items in EconPapers)
Date: 2025
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