How Financial Development Mitigates Carbon Intensity: Insight from China’s 30 Provinces

Abstract

Given the importance of financial development in promoting socioeconomic green transition, this study used a balanced panel data set spanning China’s 30 provinces from 1995 to 2018 to investigate how financial development has reduced carbon emission intensity from linear and nonlinear perspectives. First, the quantile regression results indicated that financial development (FD) significantly eradicated carbon emission intensity (CEI) across all quantiles with minor fluctuations in an influential degree. Second, FD significantly reduced CEI in nearby and local areas after implementing spatial econometric models. Third, using a spatial mediating effect model, FD's promoting effects on technological innovation and industrial structure advancement were two channels to help reduce CEI. Third, using a spatial mediating effect model, FD's promoting effects on technological innovation and industrial structure advancement were two channels to help reduce CEI. Finally, the nonlinear relationship between FD and the CEI was identified at the national level using a panel threshold model with spatial elements to recognize the mediating effects of technological innovation and industrial structure advancement. These findings emphasized the importance of continuing to refine and develop the financial mechanism and financial market, encouraging firm R&D investment, and vigorously upgrading and optimizing the industrial structure to reduce China’s carbon emissions reduction intensity.

Keywords:

• Carbon intensity
• financial development
• spatial spillover effect
• nonlinearity

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Adoption of the Paris Agreement. See https://unfccc.int/resource/docs/2015/cop21/eng/l09r01.pdf.

2 The study had two different dependent variables: CE per capita and CEI. FD decreased CE per capita and CEI in developed regions, while it increased CEs in underdeveloped regions.

3 Acheampong (2019) used different measurement indicators to measure FD. Their research demonstrated that broad money, domestic credit to the private sector, and domestic credit to the private sector by banks stimulated CO₂ emissions growth; however, there was no significant relationship when measuring financial development using FDI, liquid liabilities, and domestic credit to the private sector by financial sector.

4 See http://www.stats.gov.cn/.

5 The terminology 'green energy means enterprises that operate by adopting clean energy; for example, nuclear energy, wind power, and hydropower. The adoption of clean energy will become the norm for developing enterprises in the future. The implementation of clean energy reduces CEs.