Does improved credit access promote pollution reduction? The role of bank proximity

Abstract

The impact of the spatial proximity between banks and enterprises on industrial pollution reduction remains underexplored, particularly in areas with limited credit access. Previous studies have focused on the influence of environmental regulations and green credit initiatives; however, the significance of the financial sector's spatial distribution remains uninvestigated. Our research develops a model illustrating that improved credit access facilitates greater investment in emission reduction, leading to more effective pollution control as financing becomes more accessible. Using data from China's bank branch expansion, we empirically show that closer proximity between banks and enterprises significantly enhances pollution mitigation efforts. Our findings reveal that a more accessible banking network eases credit constraints and promotes eco-friendly practices without impeding economic growth, particularly by aiding less efficient and more polluting enterprises. This study sheds light on the crucial role of financial accessibility in advancing environmental performance and provides valuable insights for policymakers and financial strategists.