The effects of green finance on employment in developing countries: The role of human capital development

Khaw, Bei Yee and Khor, Xuan De and Loh, Tammy Ren Ling (2025) The effects of green finance on employment in developing countries: The role of human capital development. Final Year Project, UTAR.

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Abstract

Developing countries face climate pressures alongside persistent socioeconomic challenges, making green adoption strategies such as green finance essential for sustainable employment creation. Yet, high unemployment and underemployment remain unresolved, job displacement due to rapid digitalization and artificial intelligence, while the transition from fossil fuels to low-carbon industries raises questions about net job outcomes due to limited resources, skills gaps, and uneven growth and inclusivity. This study investigates how green finance influences employment in 88 developing countries from 2008 to 2022, emphasizing the moderating role of human capital development (HCD). Using a dynamic panel approach with two-step System GMM, the results reveal that green finance generally enhances employment, and its effects are amplified when combined with higher levels of HCD. However, contrasts emerge across HDI groups: in low-HDI countries, green finance alone exerts negative employment effects but becomes strongly positive when interacted with HCD; however, in high-HDI countries, green finance shows no significant impact, reflecting structural maturity and capital-intensive transitions. These findings underscore that without sufficient skills and education development; green finance cannot deliver inclusive job growth. Policy implications highlight the need for targeted vocational training, skills-upgrading programs, and complementary institutional reforms to maximize the socioeconomic and environmental benefits of green investments in resource-constrained contexts.

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