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Financial development and industrial pollution

Ralph De Haas () and Alexander Popov ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study the impact of financial market development on industrial pollution in a large panel of countries and industries over the period 1974-2013. We find a strong positive impact of credit markets, but a strong negative impact of stock markets, on aggregate CO2 emissions per capita. Industry-level analysis shows that stock market development (but not credit market development) is associated with cleaner production processes in technologically "dirty" industries. These industries also produce more green patents as stock markets develop. Moreover, our results suggest that stock markets (credit markets) reallocate investment towards more (less) carbon-efficient sectors. Together, these findings indicate that the evolution of a country's financial structure helps explain the non-linear relationship between economic development and environmental quality documented in the literature.

Keywords: financial development; industrial pollution; innovation; reallocation (search for similar items in EconPapers)
JEL-codes: G10 O4 Q5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-fdg and nep-his
Date: 2018-08-04
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Working Paper: Financial Development and Industrial Pollution (2018) Downloads
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