Does Financial Development Promote Carbon Reduction in China? A Non-Linear Test Based on The Role of Structural Optimization

Abstract

In the context of green transformation, both financial development and structural adjustment are considered as means to achieve carbon neutrality in China. A model is constructed based on dynamic panel data of 285 cities and 30 provinces in China from 2003 to 2019 to measure the impact of financial development on carbon emissions from the perspectives of financial efficiency, financial scale, and financial structure, while considering the industrial structure, factor endowment structure, and energy consumption structure as moderating variables to examine the direct and indirect effects of financial development on carbon emission reduction. The results showed that the impact of different dimensions of financial development on carbon emissions showed an “inverted U-shaped” non-linear relationship, showing a tendency to promote and then inhibit carbon emissions. When considering the regulation effect, the different structural breakdown dimensions do not change the shape of the curve. The results of the heterogeneity analysis showed that this effect is more pronounced in resource cities than in non-resource cities. Based on this, macroeconomic regulation and structural optimization are proposed from the perspective of the government and enterprises, to contributing to an earlier crossing of the financial development threshold and the achievement of carbon neutrality.