The Impact of Stability on Green Growth: Empirical Evidence from European Union Countries

Bertaç Şakir Şahin; Sabri Burak Arzova

doi:10.2478/ceej-2026-0009

.blurhash-client-img { display: none !important; }

The Impact of Stability on Green Growth: Empirical Evidence from European Union Countries

Central European Economic Journal

Volume 13 (2026): Issue 60 (January 2026)

By: Bertaç Şakir Şahin and Sabri Burak Arzova

Open Access

|Jun 2026

Abstract

Although the literature widely discusses the role of stability in economic development, its sustainability dimension remains underexplored. This study investigates the impact of political, macroeconomic and financial stability on green growth using panel data from 27 European Union countries over the period 2012–2021. The empirical results indicate that domestic credit and government debt positively contribute to green growth, whereas government effectiveness has a negative effect. By integrating multiple dimensions of stability within a single analytical framework, the study provides new empirical evidence linking institutional structures, financial development and environmental sustainability. The findings offer valuable insights for researchers, policymakers and businesses, supporting the design of more coherent and stability-oriented strategies for a sustainable and inclusive green transition in the European Union.

References

Adebayo, T. S. (2022). Renewable Energy Consumption and Environmental Sustainability in Canada: Does Political Stability Make a Difference? Environmental Science and Pollution Research, 29(40), 61307–6132. https://doi.org/10.1007/s11356-022-20008-4
Search in Google Scholar Back to article
Agheli, L., & Taghvaee, V. M. (2022). Political Stability Effect on Environment and Weak Sustainability in Asian Countries. Sustainability Analytics and Modeling, 2, 100007. https://doi.org/10.1016/j.samod.2022.100007
Search in Google Scholar Back to article
Al-Zubairi, A., AL-Akheli, A., & Elfarra, B. (2025). The Impact of Financial Development, Renewable Energy and Political Stability on Carbon Emissions: Sustainable Development Prospective for Arab Economies. Environment, Development and Sustainability, 27(7), 15251–15273. https://doi.org/10.1007/s10668-024-04703-5
Search in Google Scholar Back to article
Apergis, N., & Payne, J. E. (2014). Renewable Energy, Output, CO₂ Emissions, and Fossil Fuel Prices in Central America: Evidence from a Non-Linear Panel Smooth Transition Vector Error Correction Model. Energy economics, 42, 226–232. https://doi.org/10.1016/j.eneco.2014.01.003
Search in Google Scholar Back to article
Arellano, M. (1987). Computing Robust Standard Errors for Within-Groups Estimators. Oxford Bulletin of Economics and Statistics, 49(4), 431–434. https://doi.org/10.1111/j.1468-0084.1987.mp49004006.x
Search in Google Scholar Back to article
Arzova, S. B., & Şahin, B. Ş. (2024). Macroeconomic and Financial Determinants of Green Growth: An Empirical Investigation on BRICS-T Countries. Management of Environmental Quality: An International Journal, 35(3), 506–524. https://doi.org/10.1108/MEQ-07-2023-0210
Search in Google Scholar Back to article
Ashraf, J. (2024). How do Institutional Factors Affect Sustainable Development? A Comparative Analysis. Economic Change and Restructuring, 57(2), 24. https://doi.org/10.1007/s10644-024-09580-6
Search in Google Scholar Back to article
Auteri, M., Mele, M., Ruble, I., & Magazzino, C. (2024). The Double Sustainability: The Link Between Government Debt and Renewable Energy. The Journal of Economic Asymmetries, 29, e00356. https://doi.org/10.1016/j.jeca.2024.e00356
Search in Google Scholar Back to article
Awosusi, A. A., Rjoub, H., Dördüncü, H., & Kirikkaleli, D. (2023). Does the Potency Of Economic Globalization and Political Instability Reshape Renewable Energy Usage in the Face Of Environmental Degradation? Environmental Science and Pollution Research, 30(9), 22686–22701. https://doi.org/10.1007/s11356-022-23665-7
Search in Google Scholar Back to article
Aydın, A. (2025). The Impact of Economic Factors on Environmental Degradation: Price Instability, Monetary Growth and Renewable Energy Investments. Journal of Economic Studies. 53(1), 123–134. https://doi.org/10.1108/JES-06-2024-0436.
Search in Google Scholar Back to article
Azwardi, A., Zainal, R. I., & Igamo, A. M. (2025). The Impact of Corruption on Green Growth: Theory and Empirical Evidence of Green Economy as a Source of Growth. International Journal of Energy Economics and Policy, 15(2), 600. https://doi.org/10.32479/ijeep.18343
Search in Google Scholar Back to article
Barrett, S., & Graddy, K. (2000). Freedom, Growth, and the Environment. Environment and development economics, 5(4), 433–456. https://doi.org/10.1017/S1355770X00000267
Search in Google Scholar Back to article
Bayar, Y., Borozan, D., & Gavriletea, M. D. (2021). Banking Sector Stability and Economic Growth in Post-Transition European Union Countries. International Journal of Finance & Economics, 26(1), 949–961. https://doi.org/10.1002/ijfe.1829
Search in Google Scholar Back to article
Behera, P., Behera, B., Sethi, N., & Handoyo, R. D. (2024). What Drives Environmental Sustainability? The Role of Renewable Energy, Green Innovation, and Political Stability in OECD Economies. International Journal of Sustainable Development & World Ecology, 31(7), 761–775. https://doi.org/10.1080/13504509.2024.2333812
Search in Google Scholar Back to article
Born, B., & Breitung, J. (2016). Testing for Serial Correlation in Fixed-Effects Panel Data Models. Econometric Reviews, 35(7), 1290–1316. https://doi.org/10.1080/07474938.2014.976524
Search in Google Scholar Back to article
Bui, N. T., & Doan, T. T. T. (2025). Analysis of the Impacts of Financial Development on Green Growth: How Does Institutional Quality Matter? Asia and the Global Economy, 5(2), 100111. https://doi.org/10.1016/j.aglobe.2025.100111
Search in Google Scholar Back to article
Carbó-Valverde, S., & Sánchez, L. P. (2013). Financial Stability and Economic Growth. In Crisis, Risk and Stability in Financial Markets (pp. 8–23). London: Palgrave Macmillan UK. https://doi.org/10.1057/9781137001832_2
Search in Google Scholar Back to article
Cheba, K., Bąk, I., & Pietrzak, M. B. (2023). Conditions of the Green Transformation. The Case of the European Union. Technological and Economic Development of Economy, 29(2), 438–467. https://doi.org/10.3846/tede.2022.17993
Search in Google Scholar Back to article
Chen, Y., Lyulyov, O., Pimonenko, T., & Kwilinski, A. (2024). Green Development of the Country: Role of Macroeconomic Stability. Energy & Environment, 35(5), 2273–2295. https://doi.org/10.1177/0958305X231151679
Search in Google Scholar Back to article
Cox, G. W., & Weingast, B. R. (2018). Executive Constraint, Political Stability, and Economic Growth. Comparative Political Studies, 51(3), 279–303. https://doi.org/10.1177/0010414017710254
Search in Google Scholar Back to article
Danta, S., & Rath, B. N. (2024). Do Green Patent and Renewable Energy Consumption Matter for Sustainable Green Growth in the African Region? Economic Papers: A Journal of Applied Economics and Policy, 43(4), 370–388. https://doi.org/10.1111/1759-3441.12426
Search in Google Scholar Back to article
De Haan, J., & Siermann, C. L. (1996). Political Instability, Freedom, and Economic Growth: Some Further Evidence. Economic Development and Cultural Change, 44(2), 339–350. https://doi.org/10.1086/452217
Search in Google Scholar Back to article
Dolge, K., & Blumberga, D. (2021). Economic Growth in Contrast to GHG Emission Reduction Measures in Green Deal Context. Ecological Indicators, 130, 108153. https://doi.org/10.1016/j.ecolind.2021.108153
Search in Google Scholar Back to article
Efthimiadis, T., & Tsintzos, P. (2023). From Debt to Green Growth: A Policy Proposal. Sustainability, 15(4), 3506. https://doi.org/10.3390/su15043506
Search in Google Scholar Back to article
Ehigiamusoe, K. U., & Samsurijan, M. S. (2021). What Matters for Finance-Growth Nexus? A Critical Survey of Macroeconomic Stability, Institutions, Financial and Economic Development. International Journal of Finance & Economics, 26(4), 5302–5320. https://doi.org/10.1002/ijfe.2066
Search in Google Scholar Back to article
Feng, Y. (1997). Democracy, Political Stability and Economic Growth. British Journal of Political Science, 27(3), 391–418. https://doi.org/10.1017/S0007123497000197
Search in Google Scholar Back to article
Fischer, S. (1992). Macroeconomic Stability and Growth. Cuadernos de Economía, 29(87), 171–186.
Search in Google Scholar Back to article
Froot, K.A. (1989). Consistent Covariance Matrix Estimation with Cross-Sectional Dependence and Heteroskedasticity in Financial Data. Journal of Financial and Quantitative Analysis, 24(3), 333–355. https://doi.org/10.2307/2330815
Search in Google Scholar Back to article
Fu, C., Lu, L., & Pirabi, M. (2023). Advancing Green Finance: A Review of Sustainable Development. Digital Economy and Sustainable Development, 1(1), 20. https://doi.org/10.1007/s44265-023-00020-3
Search in Google Scholar Back to article
Global Green Growth Institute (2025, September 18) Index & Simulation. Retrieved from https://greengrowthindex.gggi.org/.
Search in Google Scholar Back to article
Greiner, A. (2007). An Endogenous Growth Model with Public Capital and Sustainable Government Debt. The Japanese Economic Review, 58(3), 345–361. https://doi.org/10.1111/j.1468-5876.2007.00394.x
Search in Google Scholar Back to article
Hille, E., Shahbaz, M., & Moosa, I. (2019). The Impact of FDI on Regional Air Pollution in the Republic of Korea: A Way Ahead to Achieve the Green Growth Strategy? Energy Economics, 81, 308–326. https://doi.org/10.1016/j.eneco.2019.04.004
Search in Google Scholar Back to article
Jiang, Y., Sharif, A., Anwar, A., Cong, P. T., Lelchumanan, B., Yen, V. T., & Vinh, N. T. T. (2023). Does Green Growth in E-7 Countries Depend on Economic Policy Uncertainty, Institutional Quality, and Renewable Energy? Evidence from Quantile-Based Regression. Geoscience Frontiers, 14(6), 101652. https://doi.org/10.1016/j.gsf.2023.101652
Search in Google Scholar Back to article
Kasman, S., & Kasman, A. (2015). Bank Competition, Concentration and Financial Stability in the Turkish Banking Industry. Economic Systems, 39(3), 502–517. https://doi.org/10.1016/j.ecosys.2014.12.003
Search in Google Scholar Back to article
Khan, M. (2019). Does Macroeconomic Instability Cause Environmental Pollution? The case of Pakistan Economy. Environmental Science and Pollution Research, 26(14), 14649–14659. https://doi.org/10.1007/s11356-019-04804-z
Search in Google Scholar Back to article
Khan, M., Rana, A. T., & Ghardallou, W. (2022). Economic Instability and Pollution Emissions in Developing Countries: A Panel Data Investigation. Energy & Environment, 33(7), 1465–1484. https://doi.org/10.1177/0958305X221091539
Search in Google Scholar Back to article
King, RG, and R Levine (1993) “Financial Intermediation and Economic Growth” In C Mayer and X Vives, eds., Capital Markets and Financial Intermediation (pp 156–189) Cambridge: Cambridge University Press https://doi.org/10.1017/CBO9780511752056.011
Search in Google Scholar Back to article
Kirikkaleli, D., & Sofuoğlu, E. (2023). Does Financial Stability Matter for Environmental Degradation? Geological Journal, 58(9), 3268–3277. https://doi.org/10.1002/gj.4707
Search in Google Scholar Back to article
Klaassen, G. A., & Opschoor, J. B. (1991). Economics of Sustainability or the Sustainability of Economics: Different Paradigms. Ecological economics, 4(2), 93–115. https://doi.org/10.1016/0921-8009(91)90024-9
Search in Google Scholar Back to article
Kurtoglu, B., & Durusu-Ciftci, D. (2024). Identifying the Nexus Between Financial Stability and Economic Growth: The Role of Stability Indicators. Journal of Financial Economic Policy, 16(2), 226–246. https://doi.org/10.1108/JFEP-09-2023-0260
Search in Google Scholar Back to article
Le, T. D., & Nguyen, D. T. (2022). Bank Stability, Credit Information Sharing and a Shift Toward Households’ Lending: International Evidence. International Journal of Managerial Finance, 18(5), 979–996. https://doi.org/10.1108/IJMF-07-2021-0311
Search in Google Scholar Back to article
Le, T. H., Le, H. C., & Taghizadeh-Hesary, F. (2020). Does Financial Inclusion Impact CO₂ Emissions? Evidence from Asia. Finance Research Letters, 34, 101451. https://doi.org/10.1016/j.frl.2020.101451
Search in Google Scholar Back to article
Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688–726.
Search in Google Scholar Back to article
Liu, S., & Zhang, H. (2024). Governance Quality and Green Growth: New Empirical Evidence from BRICS. Finance Research Letters, 65, 105566. https://doi.org/10.1016/j.frl.2024.105566
Search in Google Scholar Back to article
Lucas Jr, R. E. (1988). On the Mechanics of Economic Development. Journal of monetary economics, 22(1), 3–42. https://doi.org/10.1016/0304-3932(88)90168-7
Search in Google Scholar Back to article
Manu, L. P., Adjasi, C. K., Abor, J., & Harvey, S. K. (2011). Financial Stability and Economic Growth: A Cross-Country Study. International Journal of Financial Services Management, 5(2), 121–138. https://doi.org/10.1504/IJFSM.2011.041920
Search in Google Scholar Back to article
Masry, M. (2015). The Role of Political Stability in Achieving Economic Development. Journal of Economics and Sustainable Development, 6(16), 134–153.
Search in Google Scholar Back to article
North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.
Search in Google Scholar Back to article
OECD (2025, September 17) Green Growth. Retrieved from https://www.oecd.org/en/data.html.
Search in Google Scholar Back to article
Olczyk, M., & Kuc-Czarnecka, M. (2025). European Green Deal Index: A New Composite Tool for Monitoring European Union’s Green Deal strategy. Journal of Cleaner Production, 495, 145077. https://doi.org/10.1016/j.jclepro.2025.145077
Search in Google Scholar Back to article
Ozili, P. K., & Iorember, P. T. (2024). Financial Stability and Sustainable Development. International Journal of Finance & Economics, 29(3), 2620–2646. https://doi.org/10.1002/ijfe.2803
Search in Google Scholar Back to article
Pesaran, H. 2006. Estimation and Inference in Large Heterogeneous Panels With a Multi-Factor Error Structure. Econometrica 74(4), 967–1012. https://doi.org/10.1111/j.1468-0262.2006.00692.x
Search in Google Scholar Back to article
Qamruzzaman, M., & Karim, S. (2024). Green Energy, Green Innovation, and Political Stability Led to Green Growth in OECD Nations. Energy Strategy Reviews, 55, 101519. https://doi.org/10.1016/j.esr.2024.101519
Search in Google Scholar Back to article
Radu, M. (2015). Political Stability-A Condition for Sustainable Growth in Romania? Procedia Economics and Finance, 30, 751–757. https://doi.org/10.1016/S2212-5671(15)01324-6
Search in Google Scholar Back to article
Rakshit, B., & Neog, Y. (2021). Do Macroeconomic Uncertainty and Financial Development Cause Environmental Degradation? Evidence From an Emerging Economy. International Journal of Social Economics, 48(9), 1264–1289. https://doi.org/10.1108/IJSE-10-2020-0690
Search in Google Scholar Back to article
Rogers, W. (1993), Regression Standard Errors in Clustered Samples Stata Technical. Bulletin, 3(13), 19–23.
Search in Google Scholar Back to article
Romer, P. M. (1990). Endogenous Technological Change. Journal of political Economy, 98(5, Part 2), S71–S102. https://doi.org/10.1086/261725
Search in Google Scholar Back to article
Safi, A., Wahab, S., Zeb, F., Amin, M., & Chen, Y. (2021). Does Financial Stability and Renewable Energy Promote Sustainable Environment in G-7 Countries? The role of Income and International Trade. Environmental Science and Pollution Research, 28(34), 47628–47640. https://doi.org/10.1007/s11356-021-13991-7
Search in Google Scholar Back to article
Sajid, M., Ansari, M. A. A., Tanveer, A., Faheem, M., & Waseem, A. (2023). Evaluating the Influence of Green Growth, Institutional Quality and Financial Inclusion on Financial Stability: Evidence by Sustainable Finance Theory. Environmental Science and Pollution Research, 30(54), 115965–115983. https://doi.org/10.1007/s11356-023-30362-6
Search in Google Scholar Back to article
Sanchez-Robles, B. (1998). Macroeconomic Stability and Economic Growth: The Case of Spain. Applied Economics Letters, 5(9), 587–591. https://doi.org/10.1080/758529505
Search in Google Scholar Back to article
Shabbir, G., Anwar, M., & Adil, S. (2016). Corruption, Political Stability and Economic Growth. The Pakistan Development Review, 55(4), 689–702.
Search in Google Scholar Back to article
Shao, H., Wang, Y., Lee, C. C., & Wen, H. (2024). How Does Political Stability Affect Renewable Energy Finance? International Evidence. Energy, 313, 133829. https://doi.org/10.1016/j.energy.2024.133829
Search in Google Scholar Back to article
Smulders, S., Toman, M., & Withagen, C. (2014). Growth Theory and ‘Green Growth’. Oxford review of economic policy, 30(3), 423–446. https://doi.org/10.1093/oxrep/gru027
Search in Google Scholar Back to article
Sol Murta, F., & Gama, P. M. (2024). Sustainability and the Domestic Credit Market: Worldwide Evidence. Eurasian Economic Review, 14(4), 827–845. https://doi.org/10.1007/s40822-024-00282-y
Search in Google Scholar Back to article
Stewart, R., Chowdhury, M., & Arjoon, V. (2021). Bank Stability and Economic Growth: Trade-offs or Opportunities? Empirical Economics, 61(2), 827–853. https://doi.org/10.1007/s00181-020-01886-4
Search in Google Scholar Back to article
Tabash, M. I., Sheikh, U. A., Matar, A., Ahmed, A., & Tran, D. K. (2022). Do Financial Crises Matter for Non-Linear Exchange Rate and Stock Market Cointegration? A Heterogeneous Non-Linear Panel Data Model with PMG Approach. International Journal of Financial Studies, 11(1), 7. https://doi.org/10.3390/ijfs11010007
Search in Google Scholar Back to article
Tran, K. T., & Tran, M. N. (2025). Does Government Effectiveness Reduce the Carbon-Emitting Effect of Urbanization? A Worldwide Study. Management of Environmental Quality: An International Journal, 36(8), 2145–2164 https://doi.org/10.1108/MEQ-10-2024-0450.
Search in Google Scholar Back to article
Uddin, I., & Rahman, K. U. (2023). Impact of Corruption, Unemployment and Inflation on Economic Growth Evidence from Developing Countries. Quality & Quantity, 57(3), 2759–2779. https://doi.org/10.1007/s11135-022-01481-y
Search in Google Scholar Back to article
Udeagha, M. C., & Muchapondwa, E. (2023). Striving for the United Nations (UN) Sustainable Development Goals (SDGs) in BRICS Economies: The Role of Green Finance, Fintech, and Natural Resource Rent. Sustainable Development, 31(5), 3657–3672. https://doi.org/10.1002/sd.2618
Search in Google Scholar Back to article
Uzar, U. (2020). Political Economy of Renewable Energy: Does Institutional Quality Make a Difference in Renewable Energy Consumption? Renewable Energy, 155, 591–603. https://doi.org/10.1016/j.renene.2020.03.172
Search in Google Scholar Back to article
Wahab, S., Imran, M., Safi, A., Wahab, Z., & Kirikkaleli, D. (2022). Role of Financial Stability, Technological Innovation, and Renewable Energy in Achieving Sustainable Development Goals in BRICS Countries. Environmental Science and Pollution Research, 29(32), 48827–48838. https://doi.org/10.1007/s11356-022-18810-1
Search in Google Scholar Back to article
Wang, W., Li, K., Liu, Y., Lian, J., & Hong, S. (2022). A System Dynamics Model Analysis for Policy Impacts on Green Agriculture Development: A Case of the Sichuan Tibetan Area. Journal of Cleaner Production, 371, 133562. https://doi.org/10.1016/j.jclepro.2022.133562
Search in Google Scholar Back to article
World Bank (2025a, September 18). World Development Indicators. Retrieved from https://databank.worldbank.org/source/world-development-indicators.
Search in Google Scholar Back to article
World Bank (2025b, September 18). Worldwide Governance Indicators. Retrieved from https://databank.worldbank.org/source/worldwide-governance-indicators.
Search in Google Scholar Back to article
Yang, B., Ali, M., Nazir, M. R., Ullah, W., & Qayyum, M. (2020). Financial Instability and CO₂ Emissions: Cross-Country Evidence. Air Quality, Atmosphere & Health, 13(4), 459–468. https://doi.org/10.1007/s11869-020-00809-7
Search in Google Scholar Back to article
Yu, Q., Zuo, X., Ding, H., & Yin, X. (2024). Resource Rent, Economic Stability and the Legal Landscape of China’s Green Growth. Resources Policy, 89, 104704. https://doi.org/10.1016/j.resourpol.2024.104704
Search in Google Scholar Back to article
Zhang, C., Waris, U., Qian, L., Irfan, M., & Rehman, M. A. (2024). Unleashing the Dynamic Linkages Among Natural Resources, Economic Complexity, and Sustainable Economic Growth: Evidence from G-20 Countries. Sustainable Development, 32(4), 3736–3752. https://doi.org/10.1002/sd.2845
Search in Google Scholar Back to article