Green finance and city-level entrepreneurial dynamism in an emerging market: Nonlinear evidence from China

Green finance reallocates capital toward environmentally sustainable activities, yet its real effects on entrepreneurial dynamism in emerging markets remain unclear. This paper examines how green finance affects city-level entrepreneurial dynamism in China, a large emerging-market economy where green finance has expanded rapidly under policy-guided financial development. Using a city-year panel of Chinese cities from 2010 to 2020, we estimate a quadratic two-way fixed-effects model to examine the nonlinear effect of green finance on entrepreneurial dynamism. The estimates reveal a rising-then-falling pattern: green finance promotes entrepreneurial dynamism at low and moderate levels, but its marginal effect declines and turns negative beyond the estimated turning point. Turning-point checks, marginal slope tests, and the Lind-Mehlum test further support this non-monotonic pattern. Mechanism analyses show that green finance operates through an innovation-financing channel and a brown financial lock-in reduction channel. Heterogeneity analyses indicate that the effect varies with financial development, environmental regulation, and resource-based city status. These findings suggest that green finance can foster entrepreneurial dynamism, but only when financial deepening is accompanied by diversified intermediation, transition-finance capacity, and local institutional conditions that prevent allocation rigidity.