Study on the Impact of Financial Development on Carbon Emissions: Empirical Tests Based on Provincial Panel Data in China

Abstract

With the goal of “carbon peaking” and “carbon neutrality”, an effective financial system can guide the allocation of funds to green industries, accelerate the adjustment and optimization of industrial and energy structures, and achieve green development. Based on the panel data of 30 provinces in China from 2003 to 2019, this paper constructs a two-way fixed-effect panel model to investigate the impact of China's financial development level on carbon emissions and the differences between regions with different economic conditions and stages of financial development. The following conclusions are obtained from the empirical tests: In general, China's financial development suppresses on carbon dioxide emissions. The impact of financial development on carbon emissions is also regionally heterogeneous within China. The financial development exerts a more significant inhibitory effect on carbon emissions in the western region, which has relatively poorer economic conditions and higher levels of carbon emissions, but not in the eastern region. After China experienced the financial crisis in 2008, thanks to the reform and improvement of the financial system, the suppression effect of financial development on carbon emissions is more significant and stronger.