Nonlinear Effects of Green Finance on Ecological Welfare Performance in Chinese Provinces

Background and Aim: China faces significant challenges balancing economic development with ecological sustainability. Green finance has emerged as a potential solution, yet previous research has insufficiently examined its nonlinear effects on ecological welfare performance and its interactive mechanisms with other policy instruments. This study addresses this gap by examining the nonlinear relationship between green finance development and ecological welfare performance in China, while investigating previously unexplored interactive effects with environmental regulation, openness, and innovation across different regional contexts. Materials and Methods: Using provincial panel data from 30 Chinese provinces (2000-2021), we measured green finance development through the Entropy Weight Method, selected for its ability to objectively weight multiple financial indicators. We assessed ecological welfare performance via the Super Efficiency Slack-Based Measure (SBM) model with undesirable outputs, which effectively captures both resource utilization efficiency and environmental impact. Threshold regression and baseline regression models were employed to analyze nonlinear relationships and interaction effects. Results: Our analysis reveals a significant double-threshold effect of green finance on ecological welfare performance, demonstrating a positive U-shaped nonlinear pattern. As green finance development increases, it progressively mitigates the negative impacts of environmental regulation and economic openness on ecological welfare. Additionally, while green finance amplifies the positive impact of innovation on ecological welfare performance, this synergistic effect gradually diminishes as green finance reaches higher levels. The influence of these relationships varies substantially across eastern, central, and western Chinese regions. Conclusion: Green finance development demonstrates complex, nonlinear relationships with ecological welfare performance across China. These findings necessitate region-specific policy approaches tailored to different development stages. Policymakers should implement targeted green finance initiatives that account for regional economic structures, environmental constraints, and innovation capabilities to optimize ecological welfare outcomes, particularly in regions with varying levels of economic development and environmental challenges.