FOREIGN TRADE UNIVERSITY
FACULTY OF INTERNATIONAL ECONOMICS
……….***……….
MIDTERM REPORT
Module: Environmental Economics
THE IMPACT OF GOVERNMENT SPENDINGS ON GREEN
GROWTH IN ASIAN COUNTRIES
Group: 01
Class: KTEE216(2324-2)2.1
Supervisor: PhD. Nguyen Thi Thanh Huyen
Dr. Mai Nguyen Ngoc
No. of student
Student Names
Student ID
Contribution
1
Đỗ Mạnh Đức
2212450026
14,28%
2
Nguyễn Minh Châu
2211450605
14,28%
3
Lê Hà Vy
2212450083
14,28%
4
Nguyễn Phan Hải Linh
2212450048
14,28%
5
Vũ Hà Vy
2212450083
14,28%
6
Đinh Phạm Yến Nhi
2312450103
14,28%
7
Đỗ Thị Chiều Xuân
2313450142
14,28%
Ha Noi, March 2025
TALBE OF CONTENTS
ABSTRACT ................................................................................................................... 3
INTRODUCTION ......................................................................................................... 2
CHAPTER 1: LITERATURE REVIEW AND THEORETICAL FRAMEWORK
......................................................................................................................................... 4
1.1. Literature Review .................................................................................................. 4
1.1.1. Literature review on foreign researches ........................................................ 4
1.2. Theoretical Framework ......................................................................................... 8
1.2.1. The concepts of green growth ......................................................................... 8
1.2.2 The conceptual background of government spending ................................... 10
CHAPTER 2: METHODOLOGY AND MODEL SPECIFICATION .................. 12
2.1. Quantitative model and estimation methods: ...................................................... 12
2.2. Variables and data description ............................................................................ 14
2.2.1. Dependent variable: ..................................................................................... 14
2.2.2. Independent variable: ................................................................................... 14
2.2.3. Control variables: ......................................................................................... 14
2.2.4. Interaction variable: ..................................................................................... 15
2.3. Model specification ............................................................................................. 16
CHAPTER 3: RESULTS AND POLICY IMPLICATIONS .................................. 17
3.1. Estimated Results and Discussion ....................................................................... 17
3.2. Policy Implication ............................................................................................... 20
3.2.1 Policy implication on government expenditure allocation in fostering green
transformation ........................................................................................................ 20
3.2.2 Policy implication on boosting the financial development to promote the
green growth ........................................................................................................... 21
3.2.3 Policy implications of urbanization for advancing green ............................. 22
3.2.4 Recommendations for Vietnam ...................................................................... 24
CONCLUSION ............................................................................................................ 28
REFERENCE............................................................................................................... 30
LIST OF FIGURES
Figure 1 : The Green Growth Index dimensions map . Error! Bookmark not defined.
LIST OF TALBES
Table 1. Variables description and statistical summary .......................................... 15
Table 2. Main estimation results of GMM onestep and GMM twostep ................. 17
1
ABSTRACT
The study analyzed the impact of government spending on green growth in 26
Asian countries during the period from 2010 to 2022 using the system Generalized
Method of Moments (GMM) with secondary data sourced from GGGI, IMF, and the
World Bank. The results show that financial development positively influences green
growth by enhancing access to capital for sustainable projects, while FDI has a weak
but positive effect due to its mixed environmental impact. Conversely, government
spending and urbanization negatively affect green growth, with inefficiencies in public
expenditure following an inverted U-shaped relationship and excessive urbanization
contributing to higher energy consumption and environmental degradation. These
findings suggest that while financial system development can help promote sustainable
practices, excess fiscal expenditure can backfire due to the crowding-out effect. Based
on the results, the study gives suggestions on how the government could boost green
growth by adjusting allocations to potential sectors, strengthening regulatory
frameworks for FDI and promoting financial development to attain long-term green
growth.
2
INTRODUCTION
The constant rise in temperature in many countries has its devastating effect on
livelihood and has underscored the need for a sustainable economic approach as a
prerequisite that every nation aims for (IPCC, 2018). Threats such as the depletion of
natural resources, climate change due to overpopulation and the rising carbon emissions
in oil-exporting countries like the United Arab Emirates, Kazakhstan, the US, Korea,
and Russia pose significant environmental risks (Guo et al., 2020). The aftermath of the
financial crisis in 2008 has left the world with the greatest market failure of all time with
significant implications for employment and environment, requiring the public to
produce and consume in more efficient and less extractive ways. In response, the Global
Green New Deal was introduced in 2009 as a strategic solution to revitalize the global
economy, combat climate change and environmental degradation, and alleviate poverty
(Vargas-Hernández, 2020). This initiative involves US, the EU and other high income
OECD members spending over 2 years at least 1% of their GDP on reducing carbon
dependency. This is a rational approach in economic development that aims for a
societal-economic balance and protection of biodiversity.
Green growth, thereby, emerges in international policy discourse as a unique
strategy in response to climate change and ecological breakdown. It involves fostering
economic growth and development while ensuring that natural assets continue to
provide the resources and environmental services on which people’s well-being relies
(OECD, 2011). This approach emphasizes the decoupling of economic growth from
resource consumption and environmental harm, allowing for sustainable development
while maintaining economic progress. By focusing on green growth, nations can address
environmental challenges while promoting economic recovery and sustainable
development.
However, although green behavior has obvious positive externalities and
potentials, it often involves initial financial or effort-based costs, making some
participants unwilling to contribute, even if long-term societal benefits are substantial.
This gives answers to the inefficiencies of green initiatives and resistance from
stakeholders. Moreover, green growth often comes at the expense of increasing income
inequality and unemployment (D’ Alessandro et al., 2020). Therefore, support,
regulations, and financial compensation financed by government financing can help
achieve the goal of overall green development (Zhao & Xu, 2022).
Government expenditure plays a crucial role in facilitating green growth by
investing in green infrastructure, promoting sustainable technologies, and incentivizing
green practices. This investment helps bridge the gap between economic growth and
environmental sustainability, ensuring that the transition to a green economy is both
