Can Public Debt Finance a Green Transition? Evidence from Japan's Economic Growth

Unofficial AI-generated summary based on the public title and abstract. Not an official translation.

🔬研究者:Provides empirical evidence on the link between public debt and green transition in Japan, useful for further research on fiscal policy and climate.

🏢実務担当者:Limited direct applicability, but insights on the importance of linking debt to green investments may inform corporate transition finance strategies.

🏛政策担当者:Highlights that public debt alone does not drive growth; allocation to green investments is crucial, informing fiscal policy design for GX.

<title>Abstract</title> <p>Japan faces the dual challenge of maintaining fiscal sustainability while pursuing an ambitious transition towards a low-carbon economy. Substantial investment in renewable energy, green infrastructure, and low-carbon technology has increased interest in the potential role of public borrowing in financing green transformation. This study examines whether public debt can support Japan's green transition through its relationship with economic growth, CO₂ emissions, and renewable energy. Gross savings and trade openness are included as control variables. The study applies linear autoregressive distributed lag (ARDL) and nonlinear autoregressive distributed lag (NARDL) approaches to assess the long-run relationship and the effects of positive and negative debt changes on economic growth. The findings confirm the existence of long-run relationships in both models. However, public debt does not significantly affect economic growth, while positive and negative debt shocks also remain insignificant. The Wald test provides no strong evidence of asymmetric debt effects at the 5 percent significance level. CO₂ emissions positively and significantly affect economic growth, whereas renewable energy has a positive but insignificant effect. Gross savings and trade openness emerge as significant positive determinants of growth. The findings provide limited evidence that public debt has directly supported Japan's green transition. Instead, the effectiveness of public borrowing appears to depend on the allocation of debt-financed expenditure towards renewable energy, low-carbon technology, and productive green investment. The study highlights the importance of linking public borrowing with measurable green investment outcomes to support sustainable economic transformation.</p>

• Research Square https://doi.org/10.21203/rs.3.rs-10399918/v1first seen 2026-08-08 04:32:57