GREEN FINANCE, RENEWABLE ENERGY, AND ECONOMIC GROWTH: A STRUCTURAL EQUATION MODELLING APPROACH IN EUROPE AND CENTRAL ASIA

Abstract

The paper investigates the dynamic nature of the relationship between green finance, sustainable development, and economic growth for 48 European and Central Asian countries between 2001 and 2024. The research studies how GDP per capita growth, CO2 emissions per capita, and renewable energy use as a proportion of total final energy use affect the overall balance using direct, indirect, and undirected data. The results show that the negative impact of CO2 emissions on economic growth is very large, which brings out the limits of the environment on efficiency. The direct impact of renewable energy consumption on GDP is not significant, but it has a substantial impact through emission reductions, highlighting the importance of this source in long-term sustainability. The indicators of model fit demonstrate strong specifications, but the average explanatory power may indicate the need to enhance the sustainability proxy. The findings include the importance of green finance, which can have the most significant impact in terms of structural energy transformation and reducing environmental stress, as well as creating a platform for resilient growth. The research can advance the empirical level of sustainability pathways and provide policy implications for promoting short-term trade-offs against long-term development objectives.