How green bonds and fiscal policy catalyze eco-innovation to mitigate China’s ecological footprint: Evidence from a novel conditional process model

Ghulam Murtaza Lahbar, Abdul Khalique Khoso, Kazim Raza Talpur, Bandeh Ali Talpur, Muhammad Zohaib Saleem

Compared to developed nations, China struggles with diminishing its ecological footprint because of its economic disparity and skewed energy infrastructure. With the global shift towards digital transformation and innovative efficiencies, funding eco-friendly sectors and reducing ecological footprints is crucial. We gathered panel data from 30 provinces and cities in mainland China spanning 2005–2021 and developed a novel adaptation of conditional process analysis to examine these relationships. Green bonds and fiscal policy are vital tools to finance the sustained framework for an eco-conscious economy. These tools are closely intertwined with eco-innovation, which aids in minimizing the ecological footprint. Understanding the connection between green bonds, fiscal policy, eco-innovation, and the ecological footprint is essential for formulating new policies and addressing environmental concerns. We examined the influence of green bonds on the ecological footprint, emphasizing the roles of eco-innovation and fiscal policy. Our findings show that green bonds directly reduce the ecological footprint by 0.35 units and enhance the impact of eco-innovation. As fiscal measures heighten, the indirect effects of green bonds become more pronounced, leading to a further 0.20 unit decrease in the ecological footprint. The study implies that green bonds should be supported by fiscal incentives, innovation policy, environmental governance, and energy-infrastructure improvements. Overall, green bonds can support ecological improvement, but their effectiveness depends on institutional, fiscal, and regional conditions.