Abstract

This paper examines the relationship between institutional quality, climate-related public investment, and economic growth in advanced and emerging economies over the period 1996–2024, with particular emphasis on the role of global economic crises. The analysis investigates whether strong governance systems enhance the effectiveness of climate-related public investment and improve economic resilience during periods of financial and economic instability.

Unlike previous studies that rely on aggregate institutional indicators, this paper incorporates all six Worldwide Governance Indicators (WGI): Voice and Accountability, Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. In addition, the study introduces crisis variables capturing major global shocks, including the 2008 global financial crisis, the European sovereign debt crisis, the COVID-19 pandemic, and the 2022 energy crisis. Using a dynamic panel model estimated through the System Generalized Method of Moments (System GMM), the analysis evaluates both the direct effects of governance quality and the interaction effects between institutions, climate-related investment, and crisis periods.

The empirical findings indicate that climate-related public investment positively affects economic growth, although the magnitude of this effect differs significantly across institutional environments. Government Effectiveness, Regulatory Quality, and Rule of Law emerge as the most important governance dimensions in strengthening the growth effects of green investment. Furthermore, the results show that countries with stronger institutional quality experience lower growth volatility and greater economic resilience during crisis periods. Interaction effects suggest that climate-related investment is substantially more effective in mitigating the negative macroeconomic consequences of crises when supported by strong governance structures.

The findings imply that green investment alone is insufficient to ensure sustainable economic performance. Instead, successful green transitions require institutional systems capable of implementing policies efficiently, coordinating long-term investment strategies, and maintaining policy credibility during periods of uncertainty. Overall, the paper highlights that institutional quality is a central determinant not only of green growth, but also of economic resilience in the face of global crises.

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