Local government debt and green total factor productivity—empirical evidence from Chinese cities

In recent years, the expansion of local government debt in China has caused
widespread concern. Enhancing green total factor productivity (GTFP) is an important way to coordinate resources, environment, and regional development and is an important indicator to realize the transformation of green economic development. Scientific assessment of the impact of local government debt on GTFP helps promote the transformation of green economic development. This paper selects sample data from 271 cities in China from 2010 to 2019 and
empirically investigates the mechanisms of local government debt, green innovation (GI), and financial market development on GTFP. The results show that (1) local government debt expansion significantly suppresses GTFP in China. (2) GI mediates between the two, and local government debt suppresses GTFP by reducing the level of GI. (3) Financial market development can mitigate the negative impact of local government debt on urban GTFP. Therefore, the
governance of local government debt should be strengthened, the financial market environment should be optimized, the distortion of financial resources should be corrected, and innovative financing modes such as green finance and green credit should be encouraged to enhance GTFP.