Impact of Financial Institution efficiency, Financial Market efficiency, Fiscal Policy, and Institutional Quality on Inclusive Green Growth in Bangladesh

Md. Amzad Hossain (Assistant Professor Department of Economics & Banking)

Management and Economics Journal (MEC-J)
Vol 10, No 2 (2026)

This study examines the effects of financial efficiency, institutional quality, fiscal policy, and natural resources on inclusive green growth in Bangladesh during 1990–2025. Unlike previous studies that primarily focus on the direct effects of financial development, this study distinguishes between the efficiency of financial institutions and financial markets to provide a more comprehensive understanding of their contributions to sustainable development. The study employs the Kernel based Regularized Least Squares (KRLS) approach, estimating both average marginal effects and pointwise KRLS average marginal effects to identify nonlinear and heterogeneous relationships across observations. The empirical findings show that financial institution efficiency plays a significant role in promoting inclusive green growth by improving the allocation of financial resources toward productive and environmentally sustainable activities. In contrast, financial market efficiency has a negative effect, suggesting that efficient financial markets may continue financing environmentally intensive investments in the absence of adequate green finance incentives. Institutional quality and fiscal policy have significant positive effects, highlighting the importance of good governance and effective public expenditure in achieving sustainable and inclusive development. Natural resources also contribute positively, indicating that responsible and sustainable resource management can support long term development. The findings emphasize the need to strengthen financial institutions, improve governance, implement green fiscal policies, and manage natural resources sustainably. Fiscal policy should prioritize green public investment, climate-resilient infrastructure, and environmentally sustainable initiatives. Stronger monitoring, conservation, and community participation are also essential for responsible resource management. Together, these measures can help Bangladesh achieve economic growth while advancing social inclusion and environmental sustainability.