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Finance and carbon emissions

Ralph De Haas () and Alexander Popov ()

No 2318, Working Paper Series from European Central Bank

Abstract: We study the relation between the structure of financial systems and carbon emissions in a large panel of countries and industries over the period 1990-2013. We find that for given levels of economic and financial development and environmental regulation, CO2 emissions per capita are lower in economies that are relatively more equity-funded. Industry-level analysis reveals two distinct channels. First, stock markets reallocate investment towards less polluting sectors. Second, they also push carbon-intensive sectors to develop and implement greener technologies. In line with this second effect, we show that carbon-intensive sectors produce more green patents as stock markets deepen. We also document an increase in carbon emissions associated with the production of imported goods equal to around one-tenth of the reduction in domestic carbon emissions. JEL Classification: G10, O4, Q5

Keywords: carbon emissions; financial development; financial structure; innovation (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env and nep-hme
Date: 2019-09
Note: 861282
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