Carbon emissions and banking stability: Global evidence

Elikplimi Agbloyor, Richard Dwumfour, Lei Pan and Alfred Yawson

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the impact of per capita CO2 emissions on banking stability. To identify the causal effect of carbon emissions on the stability of banking system, we use plausibly exogenous source of variations in energy use as an instrumental variable (IV) for CO2 emissions. Using data for a panel of 122 countries over the period 2000-2013, our IV regression results indicate that there is an inverted U-shaped relationship between per capita CO2 emissions and banking stability. Our findings reveal that CO2 emissions have a positive effect on banking stability at a low level of emissions and an adverse effect at a higher emissions level. We also find that industrialization as proxied by the ratio of manufacturing value added to GDP can be a potential channel through which per capita CO2 emissions affect banking stability. Our results are robust to alternative specifications and have important implications for policy on banking stability.

Keywords: CO2 emissions; Banking stability; Energy use; Nonlinearity (search for similar items in EconPapers)
JEL-codes: G21 Q50 Q53 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-ban, nep-ene, nep-env and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:111092

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