From uncertainty to opportunity: financial development as bridge to green innovation under economic policy uncertainty

Green innovation (GI) is increasingly recognized as an essential strategy for tackling urgent environmental issues, such as climate change, resource depletion, and pollution. While research is expanding on how economic policy uncertainty (EPU) affects GI, the influence of financial sector development (FSD) as a moderator in this context remains under-examined. To address this gap, we conduct an empirical analysis utilizing two decades of data (2000–2019) from five major emerging economies (BRICS). The study employs FMOLS and DOLS models to scrutinize the data. The findings indicate that EPU has a considerable adverse effect on GI, suggesting that uncertainty in economic policies can obstruct environmentally sustainable progress. In contrast, FSD demonstrates a notable positive association with green innovation, indicating that a robust financial sector can support and bolster these initiatives. Furthermore, the study identifies that FSD serves a crucial intermediary function in the EPU-GI connection. The policy implications of this study are significant, indicating that decision-makers should prioritize enhancing financial sector institutions to foster GI, particularly in times of heightened economic volatility. By providing new evidence regarding the dynamics between EPU, FSD, and GI, this investigation offers valuable insights for developing policies that harmonize economic stability with environmental sustainability. First published online 1 April 2025

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