Financial Development, Innovation and Carbon Emission YAN Chengliang
LI Tao, LAN Wei
School of Economics, Central University of Finance and Economics; Statistics School & Center of Statistics, Southwestern University of Finance and Economics
Abstract:
This paper presents an endogenous growth model with financial development, innovation and carbon emission, and we explore the impact of financial development on carbon emission intensity. The theoretical model shows that there exists an inverted-U relationship between financial development and carbon emission intensity. The transmission mechanism is that, on the one hand, financial development can enhance technology progress, which reduces carbon emission intensity; on the other hand, financial development increases economic growth rate, which tends to increase carbon emission intensity. There is a tradeoff between these two kinds of strengths. Furthermore, using the data of 30 provinces from 1997 to 2012, we exam the impact of financial development on carbon emission intensity through the panel data model. The empirical results show that there is an inverted-U relationship between the credit level and carbon emission intensity, a U relationship between the FDI level and carbon emission intensity. Financial market development, financial industry competition and the marketization of credit fund allocation have negative effect on carbon emission. The policy implication of this paper is that we should enhance the process of low carbon economy through financial development and innovation.
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