To Facilitate or Curb? The Role of Financial Development in China’s Carbon Emissions Reduction Process: A Novel Approach

Tiancai Xing, Qichuan Jiang and Xuejiao Ma
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Tiancai Xing: School of Finance, Dongbei University of Finance and Economics, Dalian 116023, China
Qichuan Jiang: School of Finance, Dongbei University of Finance and Economics, Dalian 116023, China
Xuejiao Ma: School of Statistics, Dongbei University of Finance and Economics, Dalian 116023, China

IJERPH, 2017, vol. 14, issue 10, 1-39

Abstract: With the Paris Agreement coming into effect, China, as the largest CO 2 emitter in the world, will be facing greater pressure to reduce its carbon emissions. This paper discusses how to solve this issue from the perspective of financial development in China. Although many studies have analyzed its impact on carbon emissions, the conclusions are contradictory. A major criticism of the existing studies is the reasonability of the selection of appropriate indicators and panel estimation techniques. Almost all studies use only one or limited indicators to represent the financial development and ignore the cross-sectional dependence. To fulfil the gaps mentioned above, a financial development index system is built, and with the framework of the STIRPAT (Stochastic impacts by regression on population, affluence, and technology) model, this paper applies an ARDL approach to investigating the long-run relationship between financial development and carbon emissions and a dynamic panel error-corrected model to capture the short-run impact. The empirical results show that financial development can improve carbon emissions, and such impact not only shows a regional difference but also reflects the features of stage differences. Additionally, based on the discussion on seven specific aspects of financial development, our findings can be helpful for policy makers to enact corresponding policies to realize the goal of reducing carbon emissions in China.

Keywords: financial development; carbon emissions; financial development index system; STIRPAT model; dynamic panel data analysis; regional and stage analysis (search for similar items in EconPapers)
JEL-codes: I I1 I3 Q Q5 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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