Green Finance Development and Carbon Emissions: Evidence from a Spatial Panel Data Analysis in China

Abstract

Green finance is a specialized financial institutional arrangement that has emerged in response to the increasingly severe pressure on resources and the environment. In this paper, we construct a comprehensive indicator system from the perspective of green financial services and adopt an improved entropy method to measure green finance development. Using the panel data of 30 provincial regions in China, we adopt a spatial econometric model to investigate the effect of green finance development on carbon emissions. The results show that the carbon emissions exhibit a positive spatial correlation among the provinces. Meanwhile, green finance development has a significant carbon emission reduction effect. Evidence from China’s carbon emissions trading policy further confirms this effect. The relationship we found is consistent with two mechanisms: the technology effect of green technology innovation and the structural effect of industrial structure upgrading.