The impact of financial development on carbon emissions: A global perspective

Abstract

Financial development has been deemed to be an important factor influencing carbon emissions; however, the specific effect generated by financial development is still disputed. In this study, we examined the relationship between financial development and carbon emissions based on a system generalized method of moments and the data of 155 countries, and we further analyzed the national differences by dividing the sample countries into two sub-groups: developed countries, and emerging market and developing countries. The empirical results indicated that from a global perspective, financial development could significantly increase carbon emissions, and the analysis of the emerging market and developing countries reached the same conclusion; however, the results indicated that for developed countries, the effect of financial development on carbon emissions is insignificant. A series of robustness checks were conducted and confirmed that our empirical results were reliable. We suggest that policymakers in emerging market and developing countries should carefully balance financial development and environmental protection, as financial development will promote carbon emissions before countries reach a relatively high development level.