Carbon Emission and the Fixed Asset Investment of Financial Industry: Evidence from Chinese Provincial Data

Abstract

This study examines the effect of the structure of investment in the fixed asset on provincial carbon emission in China, and investigates the channels behind this effect. Using a panel of the provincial data from 2003 to 2016, we identify the significant negative relationship between fixed asset investment of finance and local carbon emission in China. We further apply spatial econometric empirical strategy to explore the spatial effect of fixed asset investment of finance on the provincial carbon emission. Using the adjacent matrix, distance matrix and gravity matrix, it is found that the effect is similar when the spatial correlation influence is considered and to some extent, local investment in the fixed asset of financial industry may give rise to the increase of carbon emission of the surrounding provinces. Moreover, after considering the regional heterogeneity, partial evidence indicates that this negative effect only exists in the sample of eastern part provinces. Furthermore, this study also finds two channels that fixed asset investment of financial industry affects local carbon emission: financial market and the related technological innovations. Through developing financial market and improving technical innovation, the fixed asset investment of financial industry reduces the local carbon emission level. In addition, a relevant case is constructed and we found that financial fixed asset investment promotes technology transfer as well. Using relevant variables, proxies and different estimation models, the results are found robust. This paper contributes to provide a new insight into the influence of structure of fixed asset investment on carbon emission.