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CFRI
12,2 The impact of green finance,
economic growth and energy
usage on CO2 emission in Vietnam –
280 a multivariate time series analysis
Received 9 March 2021 Quyen Ha Tran
Revised 22 May 2021
11 July 2021 University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam
Accepted 19 July 2021

Abstract
Purpose – This study aims to examine the relationship between green finance, economic growth, renewable
energy consumption (energy efficiency), energy import and CO2 emission in Vietnam using multivariate time
series analysis.
Design/methodology/approach – The data were collected from 1986 to 2018 since Vietnam initiated the
economic reforms, namely “Doi Moi” in 1986. The concept and methods of cointegration, Granger causality and
error correction model (ECM) were employed to establish the relationship between the variables of interest.
Findings – Our results confirmed the existence of cointegration among the variables. The Granger causality
test revealed unidirectional causality running from renewable energy consumption to CO2 emission and green
investment to CO2 emission.
Originality/value – This study results confirm the existence of cointegration among the variables. The
results of the study imply that policies on economic development impose a significant impact on pollution in
Vietnam. This study has described Vietnam, its economic development, green manufacturing practices, its
environmental health and level of carbon dioxide emission which was enhanced due to COVID-19.
Keywords Green finance, Economic growth, GDP, CO2 emission, Renewable energy, Energy import
Paper type Research paper

1. Introduction
Green finance and energy efficiency have played a vital role in reducing environmental
degradation by providing finance and utilizing renewable energy called efficient energy to
reduce carbon (CO2) emissions (Li et al., 2021a; Ehsanullah et al., 2021; Chien et al., 2021a).
Economic development is one of the essential goals of every nation. It is a significant factor
for all countries to examine their general status of a country. Every year, prestigious
organizations inside and outside a country provide reports or synthesized data on economic
development to view the country’s economy thoroughly. Reports and figures on Vietnam’s
economic growth can be found in the World Bank or the General Statistics Office of Vietnam
(GSO Vietnam). The economic development of a country leads to both positive and negative
consequences.
Economic development has brought many positive impacts on a country, such as creating
more jobs for workers, increasing gross domestic product (GDP) for the country and
increasing incomes for people. However, many serious issues need attention and resolution
because of the negative impacts that economic development has caused. One of the top issues
is environmental pollution. Economic development is accompanied by a fast-growing
number of companies, factories and enterprises, leading to a concentrated workforce living in
these areas. Thus, resulting in CO2 emissions from human activities and causing negative
impacts on human habitats and natural ecosystems. For these reasons, this study aimed to
China Finance Review
International
analyze the relationship between economic development (measured by GDP), green finance,
Vol. 12 No. 2, 2022 energy usage and CO2 emissions to understand whether a causal relationship exists between
pp. 280-296
© Emerald Publishing Limited
2044-1398
DOI 10.1108/CFRI-03-2021-0049 This research is funded by the University of Economics Ho Chi Minh City, Vietnam.
economic development and environmental pollution in Vietnam. If so, what the relationship is CO2 emission
like in particular (Chakraborty and Maity, 2020). in Vietnam
One of the major problems of the 21st century is global change. Despite the attempts in
recent decades to preserve nature, humans have only been willing to take few measures
forward but not to a commendable degree. The environment and energy usage are associated
with each other, and efficient energy and green finance could improve the condition of the
environment. As a result of globalization, the world’s environment was already at stake
(Zambrano-Monserrate et al., 2020). The world’s glaciers are melting at a rapid speed. The 281
international environment-related community is worried about drastic negative changes in
the world environment. As a result of COVID-19, the environment of the world has become
more polluted. The world is already in the process of controlling the world environment by
applying the green finance concept. This enhancement in pollution also results in an
enhancement in CO2 emission.
Energy usage always remains a core issue for the world. The use of energy decides the
world environment’s future whether it will get more polluted or clean. The environment is
getting more polluted, resulting in less energy usage, whether renewable or nonrenewable
(SanJuan-Reyes et al., 2021; Chien et al., 2021b; Li et al., 2021b). Energy usage is distributed in
multiple ways, i.e. residential, commercial, transportation and industrial. When people
quarantine themselves, this act affects all the sectors of energy usage. Once people get
themselves quarantined in their homes, this means that all the energy usage phases get
affected. For instance, when there is no movement, this means nil transportation usage; and
when the country’s institution is locked, this means no use energy usage commercially and
industrially. This less energy usage also results in less usage of renewable energy. All this
increases the demand to increase the need to use renewable energy (Cheval et al., 2020; Hsu
et al., 2021; Li et al., 2021c).
Another factor in controlling environmental pollution is the concept of green financing.
The importance of green finance literature is increasing at a rapid pace. The world has
realized that to control the world’s increasing temperature, the best remedy is to invest in
green finance projects. The demand for green finance is enhanced due to the less energy
usage (Espejo et al., 2020). The more investments in green finance projects, there will be lesser
pollution in the world environment. A global financial structure produces, values and
transacts capital assets such that real resources can fulfill the long-term needs of an equitable
and sustainable community. Green finance then applies to all financial tools that are
earmarked for programs and interventions for renewable growth, agricultural goods and
policies with the sole aim to facilitate a green economic transition to reduce the increasing CO2
emission while improving the sustainable and equitable pathways (Wang and Su, 2020; Chien
et al., 2021c; Li et al., 2021c). Green finance’s two primary objectives are to control the growing
threats of the environment and to reduce risk expectations. Promoting broad and
economically feasible green financing helps to favor green initiatives over business-as-
usual investments that preserve unsustainable development trends. Green finance facilitates
openness and long-term investment which will flow toward environmental priorities and
contains many of the requirements for sustainable growth defined under the UN sustainable
development goals (SDGs) (Madurai Elavarasan and Pugazhendhi, 2020).
Green finance offers investment funding for all financial sectors and assets that
incorporate environmental, social and governance-ESG requirements into investment
decisions; therefore integrating sustainability into risk management to promote
sustainable economic growth. Various participants in the investment value chain
increasingly use environmental, social and governance-ESG knowledge in their reporting
processes. As the reporting of environmental, social and governance-ESG moves from niche
to mainstream and continues to have consequences for the balances, investors ask tough
questions about assessing, managing and reporting environmental, social and governance-
CFRI ESG results. Environmental, social and governance-ESG’s risk estimates of insurers’ three-
12,2 fold asset and responsibility are critical: physical risk, transfer risk and liability risk. For
banks, environmental, social and governance-ESG threats affect the creditworthiness of
banks. Banks will also include sustainable loans and provide environmental effects in risk
analyses and price assessments. In order to recognize challenges and rewards, institutional
investors should combine environmental, social and governance-ESG portfolio selection and
management considerations (Barcelo, 2020).
282 Most studies focus on the green finance and environmental degradation such as Zhou et al.
(2020) and Hafeez et al. (2018). But the role of green finance along with energy efficiency and
economic growth on the CO2 emission in Vietnam is one of the first attempts. A study conducted
by Shove (2018) on energy efficiency and carbon emission recommended that future studies
could examine the impact of energy efficiency along with green finance on the CO2 emission.
Therefore, current study answers the gap mentioned above and investigates the impact of
green finance, economic development and energy usage on CO2 emission. The research is
valuable for the policymakers while developing the policies related to the green finance and
energy efficiency role on carbon emission. This study is also beneficial for the environment
protection authorities of Vietnam to control the high environmental degradation in the country.
Thus, the current research aims to investigate the relationship between green finance, economic
development, energy usage and CO2 emission. The objective of the study includes:
(1) To examine the effects of green finance on CO2 emission in Vietnam.
(2) To investigate the impact of energy efficiency on the CO2 emission in Vietnam.
(3) To explore the relations of economic development and environmental degradation.
Based on the above objectives of the study, the current study has the following research
questions that need to be answered:
RQ1. Does green finance affect environmental degradation in Vietnam?
RQ2. Does energy efficiency affect CO2 emission in Vietnam?
RQ3. What is the relationship between economic development and CO2 emission in Vietnam?
In Vietnam, there were few studies conducted on the relationship between economic growth,
green finance, renewable energy consumption and CO2 emission; where most of the results
found two-way causalities between CO2 emissions and income using integration and Granger
causality tests (Klemes et al., 2020). In addition, most research were based on the
environmental Kuznets curve (EKC) approach, which assumed an inverted U-shaped
relationship between income and pollution, deals with the relationship between economic
growth and pollution that resulted in controversial outcomes. For example, the study
supported the EKC hypothesis, which assumed an inverted U-shaped relationship between
CO2 emissions and economic growth in Vietnam from 1976 to 2009 (Jiang et al., 2021).
However, the empirical results did not support the EKC theory in Vietnam from 1980 to 2010.
There was also another study that investigated the existence of the EKC hypothesis in
Vietnam between 1981 and 2011 (Chen et al., 2020). Using the autoregressive distributed lag
(ARDL) method, they found that the EKC hypothesis did not exist because the relationship
between GDP and pollution was positive in both the short and long run. More recently, the
1974–2016 annual data of Vietnam showed that the EKC did not exist in the short run but
only in the long run and that the N-shape described the long run income-pollution relationship
better (Fell et al., 2020). The current investigation investigates the relationship between green
finance, economic development, energy usage and CO2 emission. Furthermore, the current
investigation is all about Vietnam.
2. Literature review CO2 emission
This study is supported by the green economy theory that highlighted the links between the in Vietnam
people and the environment. The individual should improve the environment by using green
growth, green finance and green and efficient energy (Bondarenko et al., 2020). The green
economy theory forces individuals to use green finance and efficient energy to improve
green economic development and to not affect the environment (Ivlev and Ivleva, 2018; Chien
et al., 2021a). Thus, the current study also investigates the impact of green finance, economic
development and energy usage on the CO2 emission in Vietnam. 283
GDP measures the total income of a nation, which means the total income of everyone in
the economy. GDP is the most closely watched economic statistic because it is thought to be
the single best measure of a society’s economic well-being. Therefore, GDP is an important
indicator used to track the health of a nation’s economy, such as economic growth. One of the
negative consequences of economic development is CO2 emission because it has been
reported to be significantly linked to air pollution and climate change which has seriously
damaged our environment and life (Jiang et al., 2021; SanJuan-Reyes et al., 2021; Nguyen et al.,
2021; Othman et al., 2020). The relationship between green finance, GDP, energy usage and
CO2 emission has been found in many countries and they are controversial. It could be a
nonsignificant, unidirectional or bidirectional causality relationship between them, either in
the long- or short-run (Smith and Mennis, 2020). For instance, there was a significant long-
and short-term causal relationship between CO2 emissions and economic growth in Pakistan
(Hosseini, 2020). Additionally, the bidirectional causal relationship was also investigated
between CO2 emissions and growth (Nawaz et al., 2020a, b).
Another factor that plays a vital role toward CO2 emission reduction is the investment in
the green finance project (Nawaz et al., 2020a, b; Anh Tu et al., 2021). A green financing facility
is a combination of the related facilities. The credit facility is one of the core factors of green
financing. Credit facility in the world has provided numerous opportunities for businesses to
enhance their operational capabilities, which further lessen the environmental threat by
reducing the CO2 emission, which improved as a result of COVID-19 (Chakraborty and Maity,
2020). Green finance could enhance the green economic growth that does not affect the
environment and reduce CO2 emissions (Zhang et al., 2021). In addition, the green credit
grantee scheme that is also a part of the green finance could improve the environment and
reduce CO2 emissions (Taghizadeh-Hesary and Yoshino, 2019). Moreover, low CO2 emission
in the country can be achieved using green finance and efficient energy that reduces
environmental degradation (Mohsin et al., 2020). A study by Yoshino et al. (2021) reported that
sustainable environmental goals can be achieved using green finance and efficient energy.
This facility has also eluded the restrictions of business expansions which were prevalent
on environmental control. Therefore, green credit inducement in the current world has
emerged with numerous policies that provide ease of business facilities in terms of
environmental control (Naderipour et al., 2020). The facilities of credit loans to companies
have mitigated the environmental impact in organizations. This induction has also provided
the facilities for companies to enhance their poor environmental performance. While reining
the credit loans to organizations, the policy of green credit implementation has gained much
importance at both provincial and national levels. It is the significant mode of achieving
standards and lack of environmental problems that are prominent in the organization (Paez
et al., 2020; Vaka et al., 2020).
The integration of policy with global influence has attained practical importance that has
enhanced the performance rating system. This is a positive approach in many countries where
the green credit system has been established to control the environmental threats which are
getting worse (Ero glu, 2020). The enhanced policy of green credit has also eliminated the vague
policies, which were harmful for organizational growth and the betterment of the environment.
It also asserted its positive contribution toward economic growth by the outlined improvement
CFRI in the world’s environment. Some remarkable achievements have emerged in the global world,
12,2 which are dominant in the industries. These achievements are positive endurance of the green
credit which induced its prominent importance among the elements of organizations and
governments. Green credit policy is the paradox among optimization of industrial structure,
emission reduction and energy saving. Numerous gaps also existed among the local
governments and enterprises with the illustration of expectations and realities with the policy
execution of green credit (Leach et al., 2021).
284 Investment in the organizations is a positive contributor of growth toward the world’s
environmental health, which gets badly affected by COVID-19. This contribution is usually
based on investors’ perception, which is more about the economic and environmental
conditions. The exclusionary impact of ethical investments also influences corporate behavior.
Therefore, green investments asserted a significant role among the costs of a firm’s capital. This
influence and role are presented by the equilibrium behaviors of green investments, which are
reluctant due to effective policies toward projects. Various reforms have been made in the
organizations due to reluctant behaviors of green investment (Ataguba, 2020). This is an
incentive toward the firms which are indulged in the parameters of environmental pollution.
Therefore, some reasonable measures are required in the organizations to avail the ultimate
benefits of green investment, which uplifts the environmental conditions. This is upon the
trends of green investments, which extends the benefits that boost the performance of
organizations (in terms of environment control support operations) and economies.
With the emergence of economic conditions in most countries, the value of green
investment has also been enhanced (Gopalan and Misra, 2020). This enhancement induces
sound financial systems that refer to the low interest rate with high fuel prices. Some
intervention of green investment policies drives the support toward organizations that are
closely associated with investing elements. The cash flows are also associated with the
financial elements of green investment, which states societal benefits, i.e. betterment of the air
and other related pollution, carbon emission etc. Energy imports have a prominent role in the
increment of energy resources. This prominence also induces a significant impact on the
carbon emission of energy systems. Therefore, the reduction in energy imports could cause a
substantial impact on energy security, imported fuels, diversification of energy resources and
primary energy supply. This diversification of energy resources is eminent with the two-fold
impact of reducing energy resources while cumulating renewable energy. Although the results
are eminently inducing a positive role due to the reduction, the role of resilience also prevails.
The prevalence of resilience in energy import develops the investigations over output and
input of energy imports (Chakraborty and Maity, 2020; Madurai Elavarasan and Pugazhendhi,
2020). It could enumerate the levels of energy import that can endure the sacrificing demands
of domestic companies. These levels are a significant enumeration of assumed portfolios
developed with dependencies in the improvement of energy resilience. This development
confronts the influence of political leadership, which expands the diversification of energy
imports. It not only impacts the economic conditions but also enumerates the drawbacks as
well. Some beneficial alternatives have been described with specific circumstances which
enhance the importance of energy import and its influence on strategic decision making. Many
countries have placed the procedure of scrutiny over energy imports that are important for the
development of future to tackle challenges. Some prominence of geographical locations has
widely stated the ambiance in regions where the energy import benefits. These benefits are
taken mainly by large organizations, contributing to the significant portion of energy import.
The emergence of energy imports is also linked with the development of international tourism
with rich cultures (Gautam and Hens, 2020; Tisdell, 2020). Energy imports will play a vital role
in the improvement of environmental health.
Renewable energy consumption, environment and economic growth are significantly
linked with each other. The driving demand for renewable energy consumption has created
numerous opportunities for emerging economies. It is only due to the high usage of renewable CO2 emission
energy that is dominant for income generation, but focusing more on environmental in Vietnam
betterment in many countries (Jin, 2020; Tsao et al., 2021). Some positive impacts have also
been ascertained in many economies where the variation of energy consumption is usually
based on the geographical structures of organizations. The relationship between renewable
energy consumption, environmental and economic conditions is prevalent in the long-run
equilibrium. This linkage significantly exists among the labor force factors, capital
formation, renewable energy consumption and real GDP. This dominates the economic 285
conditions, which are closely associated with a variety of macroeconomic factors. Although
macroeconomic elements indicate its long-run and short-run impact, the enhancement in
renewable energy usage is the urgent need to minimize the COVID-19 threat in terms of the
environment (Aktar et al., 2021; Rizou et al., 2020). This impact is also enumerated by the
positive relationship between economic growth and renewable energy consumption.
The functions of augmented and classical production make a comparison among the
renewable energy consumption. This comparison states the series of functional elements for
the development of betterment in disturbed environmental conditions. The factors associated
with renewable energy consumption have positively contributed to reducing CO2 emission
(Atalan, 2020; Wilcox et al., 2003). Although some impacts are dominant in many countries,
effective policies of developing renewable energy through the bulk of wastage cover huge
costs. This relevance of cost is also considered a massive barrier toward the development of
better economies. Therefore, many countries have benefited from their environmental and
economic conditions through the effective usage of renewable energy.

2.1 Theoretical background

The past literature such as Zhang et al. (2021), Taghizadeh-Hesary and Yoshino (2019) and
Yoshino et al. (2021) have reported that green finance has a positive and significant influence
on the environment and reduce the CO2 emission of the country. In addition, past studies such
as Awodumi and Adewuyi (2020), Shuai et al. (2019) and Khan et al. (2020) indicated that
economic growth could reduce the CO2 emission in the country and has a positive and
significant influence on the environment. Moreover, the studies of Nguyen and Kakinaka
(2019), Emir and Bekun (2019) and Acheampong et al. (2019) have shown that effective
renewable energy consumption has a positive and significant influence on the environment
and reduce CO2 emission. Based on the above-mentioned studies, the current study has
developed the theoretical framework that shows green finance such as green credit and green
investment along with economic growth, renewable energy consumption and energy import
have a significant association with CO2 emission and environmental performance.

3. Data and research method

This study investigated the nexus among green investment, green credit, economic growth,
renewable energy consumption, energy import and CO2 emission of Vietnam. The data
includes observations collected for GDP, renewable energy consumption, energy import, green
credit, green investment and CO2 emissions since Vietnam implemented the “Doi Moi” policy
to date, specifically for the period of 1986–2019. The estimation equation is as follow:
CO2t ¼ α0 þ β1 GCt þ β2 GINVt þ β3 EGt þ β4 RECt þ β5 EIt þ et (1)

where;
CO2 5 Carbon emission
t 5 Time period
CFRI GC 5 Green credit
12,2 GINV 5 Green investment
EG 5 Economic growth
REC 5 Renewable energy consumption
EI 5 Energy import
286
Green finance was measured by using green investment and green credit. In particular, the
data for GDP was calculated in GDP per capita growth (annual percentage) and CO2 was the
emissions from residential buildings, commercial services and public services (percent of
total fuel burning) and was calculated as a percentage, denoted by CO2 in the data processing.
In contrast, green investment was measured as the ratio of investment in environmental
protection projects to GDP and green credit was measured as the ratio of green loans to total
loans. In addition, renewable energy consumption was measured as the percentage of total
energy consumption and energy import was measured as the energy import to total energy
usage. The measurements are shown in Table 1.
To analyze the relationship between the two-time series, the commonly used statistical
model is VAR (vector autoregressive) or VEC (Vector Error Correction) model. The usual
procedure is to first unit test for two-time series. If it is found to be stationary, then the
Granger causality test and estimation of the VAR model are applied; otherwise, if the two-
time series is not stationary, then we test the cointegration. If cointegration exists, then we
estimate the VEC model to examine the causal relationship.

3.1 Unit root test

This test was conducted to see if the time series is stationary or otherwise. A stationary time
series process is one whose probability distributions are stable over time in the following sense:
if we take any collection of random variables in the sequence and then shift that sequence ahead
in a fixed time period, the joint probability distribution must remain unchanged. If time series
are non-stationary, there may be a spurious regression between the two series. Even though
they are independent of each other, a strongly significant relationship can be given when we
conduct regression analysis for these time series. The commonly used unit root test include the
Dickey–Fuller tests. The estimation equations for the unit root test are as follow:
dðYt Þ ¼ α0 þ βt þ γYt−1 þ dðYt ð−1ÞÞ þ εt (2)

S# Variables Measurement Sources

01 Carbon emission Emissions from residential buildings, commercial services World bank
and public services (percent of total fuel burning) database
02 Green credit The ratio of green loans to total loans Central bank of
Vietnam
03 Green investment The ratio of investment in environmental protection Central bank of
projects to GDP Vietnam
04 Economic growth GDP per capita growth (annual percentage) World bank
database
05 Renewable energy Renewable energy consumption (percentage of total energy World bank
Table 1. consumption usage) database
Variables with 06 Energy import Energy import (percentage of total energy usage) World bank
measurements database
Thus, for the individual construct, stationarity was examined separately, and estimation CO2 emission
models of each construct are given below: in Vietnam
dðCO2t Þ ¼ α0 þ βt þ γCO2t−1 þ dðCO2t ð−1ÞÞ þ εt (3)
dðGLCt Þ ¼ α0 þ βt þ γGCt−1 þ dðGCt ð−1ÞÞ þ εt (4)
dðGINVt Þ ¼ α0 þ βt þ γGINVt−1 þ dðGINVt ð−1ÞÞ þ εt (5)
dðEGt Þ ¼ α0 þ βt þ γEGt−1 þ dðEGt ð−1ÞÞ þ εt (6)
287
dðRECt Þ ¼ α0 þ βt þ γRECt−1 þ dðRECt ð−1ÞÞ þ εt (7)
dðEIt Þ ¼ α0 þ βt þ γEIt−1 þ dðEIt ð−1ÞÞ þ εt (8)

3.2 Granger causality test

Correlation does not imply causality because correlation or covariance is asymmetric,
bivariate relationship: cov(x, y) 5 cov(y, x). However, Granger causality, defined by Granger
(1969), can infer possible causality between pairs of variables. The x is said to “Granger
cause” y when past values of x aid in the prediction of yt, conditional on having already
accounted for the effects on yt of past values of y, i.e. x ≥ y.
To perform the Granger causality test, time series must be stationary. Therefore, we first
need to conduct a unit root test for time series to determine whether they are stationary or
non-stationary. If at least one of these series is non-stationary, then we might find other ways,
such as getting the first difference to make the series stationary to test the Granger causality
later. However, differencing variables limits the scope of the questions that we can answer.
Thus, we might apply other methods suitable for non-stationary series, such as the ARDL
model (Pesaran et al., 2001).

3.3 Test for cointegration

The notion of cointegration, which was given a formal treatment, makes regressions
involving I (1) variables potentially meaningful. Time series are said to be integrated of order
zero, or I (0), which means that nothing needs to be done to such series before using them in
regression analysis; averages of such sequences already satisfy the standard limit theorems.
I (0) therefore also mean that the series is stationary. The issue of cointegration applies when
two series are I (1), but a linear combination of them is I (0); in this case, the regression of one
on the other is not spurious but instead tells us something about the long-run relationship
between them. Cointegration between two series also implies a particular kind of model,
called an error correction model (ECM), for the short-term dynamics. So, if the series x and y
are non-stationary and cointegrated, then the Granger causality test will no longer be suitable
and a more suitable way of causality test will be considered, such as Johansen’s likelihood
ratio test for cointegration, based on the ECM.

3.4 The error correction model (ECM)

In the analysis of vector autoregressions, we assume that the variables of the model are
stationary. Individually non-stationary variables may be cointegrated: two (or more) variables
may have common underlying stochastic trends along which they move together on a non-
stationary path. An ECM is the appropriate econometric specification for the simple case of two
variables and one cointegrating relationship. In this model, the equation is differenced and an
error-correction term was measuring the previous period’s deviation from long-run equilibrium.
Δyt ¼ βy0 þ βyy1 Δyt−1 þ βyx1 Δxt−1 þ λy ðyt−1  α0  α1 xt−1 Þ þ vyt (9)
CFRI Δxt ¼ βx0 þ βxy1 Δyt−1 þ βxx1 Δxt−1 þ λx ðyt−1  α0  α1 xt−1 Þ þ vxt (10)
12,2
All the terms in the above equations are I (0) if the variables are cointegrated with
cointegrating vector (1, α0, α1), which means if (yt1α0α1xt1) term is stationary.
The λ coefficients are the error-correction coefficients, measuring the response of each
variable to the degree of deviation from long-run equilibrium in the previous period.
288 Since ∂Δyt/∂yt1 5 λy, we expect λy to be negative for the reason that: if yt1 is above its
long-run value in relation to xt1 then the error-correction term in parentheses is positive
and this should lead other things constant, to downward movement in y in period t. The
coefficient λ, which we expect to be negative, represents the amount of correction of this
period (t–1) disequilibrium that happens in period t. For example, if λy is 0.25, then 25% of
the gap between yt –1 and its equilibrium value would tend to be reversed in period t
because the sign is negative.
The expected sign of λx depends on the sign of α1 because ∂Δxt/∂xt1 5 λxα1 and we
expect λxα1 < 0 for the reason that if xt1 is above its long-run relation to y, then we expect
Δxt to be negative, other things constant. x is said to cause a Granger effect on y if in the
equation of Δyt the coefficients of the lag variables of x, which represent the long-term
relationship, or the coefficient of the error correction component, which represents the short-
term relationship, is statistically significant. A similar approach adapts to the equation of Δxt
when considering y causes Granger effect on x.

4. Results
The results section shows the descriptive statistics and the unit root test, ECM and Granger
causality tests. These analyses are given below in subsections.

4.1 Descriptive statistics

Table 2 below shows the variables’ descriptive statistics, including economic growth,
renewable energy consumption, green investment, green credit, energy import and CO2.
These results showed the mean values along with standard deviation and minimum and
maximum values.

4.2 Test for stationary

The unit root tests by Dickey–Fuller were employed to test for stationary. The null
hypothesis of these tests was that the series is not stationary. The results revealed that both,
EG, REC, GINV, GC, EI and CO2 time series are non-stationary at a level. However, the first
difference of EG, REC, GINV, GC, EI and CO2 were stationary. This implies a potential
cointegration between the two series. These values are highlighted in Table 3.

4.3 Johansen test for cointegration

Johansen test was applied only for series with the same integration I (q) where q > 0. Here
we used the Johansen test with the trend since we identified a significant trend in each
series previously in the descriptive statistics section. The null hypothesis (Ho) was that the
series are not cointegrated. We reject Ho if the value of the statistic is greater than the
critical value. The results showed both trace statistic and max statistic were larger than a
critical value, confirming that CO2, REC, GINV, GC, EI and EG are cointegrated and they
have one cointegration vector; therefore, they have a long-run relationship, which means
that the two series go together in the long run. These values are highlighted in Table 4.
4.4 Error correction model (ECM) CO2 emission
The ECM outputs showed a short-run causality from GDP, GINV, GC, REC and EI to CO2. The in Vietnam
error correction term was 1.085095, indicating the speed of adjustment toward equilibrium,
which means 80.51% of the gap between CO2(t1) and its equilibrium value would tend to be
reversed in period t because the sign was negative. These values are mentioned in Table 5.
The Granger casualty test was also examined by the researchers to check the both sided
nexus among the variables. The outcomes showed no causality among CO2 and economic
growth, CO2 and EI, and CO2 and GC while a unidirectional causality between CO2 and GINV, 289
CO2 and REC. These are shown in Table 6.

5. Discussions
Vietnam is a developing country with an emerging economy and green financing system.
This study describes the impact of green financing options on the overall CO2 emission in
Vietnam. The results have indicated that green finance has a negative association with CO2
emission in Vietnam and these outcomes are in line with the results of Li et al. (2021a), who
also exposed that green investment reduces CO2 emission in the country. The results of the
proposed experimental techniques summarized the overall development of an eco-friendly
atmosphere. These findings were directly correlated with the research-based studies (Tien
et al., 2020). The results also exposed the renewable energy consumption or energy efficiency

Variable Obs Mean Std. Dev Min Max

CO2 33 5.144 4.192 1.634 13.288

GINV 33 0.265 0.383 0.309 0.435
GC 33 0.166 0.188 0.102 0.416
EG 33 4.678 1.243 3.610 8.720
REC 33 0.212 0.655 0.171 0.437 Table 2.
EI 33 0.248 0.632 0.156 0.448 Descriptive statistics

Augmented Dickey–Fuller test (ADF) Level t-statistics p-values

CO2 I (1) 6.953 0.0000

GINV I (1) 8.022 0.0000
GC I (1) 5.604 0.0001
RG I (1) 4.908 0.0004
REC I (1) 6.127 0.0000 Table 3.
EI I (1) 4.315 0.0019 Unit root test

Hypothesized Trace 0.05

No. of CE(s) Eigenvalue Statistic Critical value Prob**

None* 0.781049 145.9112 102.8473 0.0000

At most 1* 0.554039 80.15370 75.97277 0.0131
At most 2 0.412731 45.28521 53.07904 0.1056
At most 3 0.257036 22.20847 34.19275 0.4145 Table 4.
At most 4 0.127680 9.16080 19.26184 0.5240 Unrestricted
At most 5 0.079530 2.939375 8.164546 0.3212 cointegration rank
Note(s): * denotes rejection of the hypothesis at the 0.05 level; ** MacKinnon et al. (1999) p-values test (trace)
CFRI Variable Coefficient Std. Error t-statistic Prob
12,2
D(GINV) 1.450432 0.169265 8.569001 0.0000
D(GC) 0.352896 0.141657 2.491201 0.0090
D(EG) 1.436952 0.320123 4.488749 0.0000
D(REC) 0.155515 0.064106 2.425904 0.0102
D(EI) 0.556290 0.073828 7.534946 0.0000
290 ECT(1) 0.805095 0.123059 6.542349 0.0000
C 0.824283 0.329373 2.502582 0.0101
Table 5. R2 0.731111 Mean dependent var 0.160743
2
Error correction model Adjusted R 0.712963 S.D. Dependent var 3.572583

Null hypothesis Obs F-statistic Prob Decision

EG does not Granger cause CO2 33 0.79595 0.4169 NO

CO2 does not Granger cause EG 1.12913 0.3673
GINV does not Granger cause CO2 33 0.25232 0.7054
CO2 does not Granger cause GINV 4.26581 0.0234 Unidirectional
GC does not Granger cause CO2 33 2.17743 0.1396
CO2 does not Granger cause GC 0.44486 0.7106 NO
REC does not Granger cause CO2 33 1.26213 0.2687
CO2 does not Granger cause REC 3.21612 0.0612 Unidirectional
Table 6. EI does not Granger cause CO2 33 1.73375 0.1740
Granger causality test CO2 does not Granger cause EI 2.26709 0.1078 NO

to reduce the CO2 emission, and this result matched with the findings of Shove (2018), who
also indicated that the energy efficacy reduces environmental degradation. The modern
industries have successfully been implemented in Vietnam and the results were quite drastic
in previous years. These results also exposed that economic growth has a positive linkage
with CO2 emission and were similar to the results of Shuai et al. (2019), who also found that a
positive association with economic development and environmental degradation.
This study explains the impact of CO2 emissions on global warming and the ozone layer
depletion crisis on Vietnam’s economy and environmental health (Le et al., 2020). Green
financing is another way to improvise the environmental condition of Vietnam and this
research paper proved that green financing affects the enhancement in CO2 emission.
Specifically, the evidence from Vietnam showed in this research paper matches the research
findings of the research group in Chinese universities (Anser et al., 2020). Globalization is the
new and improvised trend of modern societies. Green investments are the emerging notion of
a modernized world. This trend is essential for the economic and social well-being and the
environmental betterment of the nations. Sustainable development and protection of natural
habitats are also vital, and this paper showed that Vietnam is making rapid progress in
environmental improvisation (Ridzuan et al., 2020). The pace of success is quite fast in terms
of economic growth and environmental advancement in Vietnam (Jelınek et al., 2021).
The technological advancements are numerous and the current study describes the
impact of energy usage and globalization on CO2 emission in Vietnam. Modern societies are
the hub of technological advancement. Energy usage is imperative for the business firms to
work properly with the intention to recover from the COVID-19 pandemic after effects. The
trend of the establishing improvised and techno-smart firms in Vietnam is a major cause of
environmental pollution. The research findings are in coordination with the research findings
of previous researchers (Wang et al., 2020). Economic growth and development are the most
integral part of national growth and are associated with CO2 emission. The emergence of new CO2 emission
and innovative technological advancements has provided a safe hub for developing green in Vietnam
projects. This study shows the association between economic growth and CO2 emission in
Vietnam. Modern machinery and green manufacturing practices have helped Vietnam to
cope with the havoc caused by the COVID-19 pandemic. These findings are in line with the
research of the researcher.
The CO2 emission index is a trend to improve the environmental health of the community.
The trading and transfer of information with other nations worldwide are essential for 291
economic stability, but the cost of the nation’s health is not suitable. Vietnam has improved a
lot in these years, and this study described and correlated the impacts of economic growth on
the modernized societies and safe green manufacturing practices of Vietnam. The most
important thing is that the government of Vietnam should take radical steps to improve
environmental health and economic development simultaneously. The research findings
aligned with the research work of Abdul-Latif et al. (2020).

5.1 Conclusion
The results indicated that renewable energy consumption and green finance have a
significant impact in reducing pollution in Vietnam. Effective renewable energy consumption
and the valuable investment in green finance could reduce CO2 emission and improve the
environmental condition in Vietnam. This current study also deduced that the economic
development, green manufacturing practices, environmental health and social, technological
and economic corporate social responsibility of Vietnam had shown the seriousness of the
nation toward the environmental conditions of the country. Additionally, the investment in
green projects is fruitful in terms of the enhanced ecological and environmental performance
of Vietnam. Therefore, the correct and effective usage of renewable energy is essential to
provide new endeavors for psychological and ecological sustainability. The current study
supports the process of green financing and biologically sound practices. The study suggests
that the modernized nations with more technological advancements are prospering in the
world by virtue of their eco-friendly products.

5.2 Study implications

The current study has theoretical and practical implications that are mentioned under the
subsection given below:
5.2.1 Theoretical implications. This study has some theoretical implications, such as it
provides theoretical support to the literature related to green finance, renewable energy
consumption, economic growth and CO2 emission. In addition, the study also provides
theoretical support to the literature related to the relationships among renewable energy
consumption and CO2 emission, green finance and CO2 emission, and economic growth and
CO2 emission. Finally, this study also provides theoretical support to the literature regarding
joint relationships among green finance, renewable energy consumption, economic growth
and CO2 emission.
5.2.2 Practical implications. The economy of a large population like Vietnam and the
human capital burden is thriving to achieve environmental betterment. The current study
provides the help to develop effective policies that reduce CO2 emission. The research is
valuable for the policymakers while developing the policies related to the green finance and
energy efficiency role on CO2 emission. This study is also beneficial for the environment
protection authorities of Vietnam to control the high environmental degradation in the
country by using green finance and efficient energy. Further, this study provides the
guidelines to the industry sector in Vietnam that they should reduce their CO2 emission that
affects the environment badly by using green finance and effective energy usage. Finally, the
CFRI current study provides guidance to the new studies that want to examine the green finance
12,2 and efficient energy impact on environmental degradation.

5.3 Limitations and future directions

All the research works have some flaws in them that are due to the research-based
shortcomings. The current study also has some crucial issues. These limitations of the
current study are the way of hope and innovation for future researchers and their research
292 works. This study is based on research-based evidence from a single country which is one of
the developing and economies of the Asia–Pacific. So, the researchers have faced a lot of
hurdles in data collection and overall analysis. Generalizability is scarce in these data which is
the main limitation. Cross-verification of the research-based evidence is necessary in this
regard. This research-based study suggested that if the industries are capable of maintaining
the environmental safety precautions vide investment in green projects and business
systematic simultaneously, then environmental as well as economic performance becomes
marvelous in a very short length of time. The current study examines the impact of economic
growth, energy usage and green financing on CO2 emission rates in Vietnam, specifically.
More independent and dependent variables are necessary for getting better results in future
studies. Future researchers must find new data sets from different nations and communities
of the modernized world to have a wide view and differentiate versions. The comparative
analysis will provide additional information about different problems in adopting economic
growth and CO2 emission. Future researchers are suggested to use more independent
variables in terms of GDP and safe environmental practices.

Highlights
(1) Currently, carbon emission has become a global issue that has adverse effects on the
environment.
(2) The investment in renewable energy could reduce carbon emissions and
environmental degradation.
(3) Green finance has been considered the foremost solution for environmental
degradation and reduces carbon emission in the environment.
(4) The regulators should enhance their focus on green finance that controls
environmental degradation and low investment in renewable energy.

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Corresponding author
Quyen Ha Tran can be contacted at: [email protected]

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