Does the financial support to rural areas help to reduce carbon emissions? Evidence from China

Abstract

Governance of County Carbon Emissions (CCEs) plays a pivotal role as China endeavors to align the strategies of rural revitalization with the goals of carbon peak and neutrality. This study delves into the influence of Financial Support to Rural Areas (FSRA) on CCEs, employing data from 955 counties across China. The primary findings encompass: (i) FSRA markedly influences CCEs. Specifically, both the depth and breadth of FSRA exhibit an inverted U-shaped relationship with CCEs. However, the strength of FSRA has a decidedly negative correlation. (ii) Heterogeneity analysis indicates a more pronounced effect of FSRA on CCEs reduction in China's central and western counties compared to the eastern ones. Moreover, following the receipt of loans, farmers display a greater inclination towards emission reduction behaviors than do farm-related economic entities. (iii) Mechanistic analysis elucidates that while FSRA augments CCEs through a scale effect, it curtails CCEs via the composition and technique effects. (iv) Further analysis reveals that the reform policies of Rural Credit Cooperatives (RCCs) bolster the reduction in CCEs. This effect becomes increasingly evident as the age of Rural Commercial Banks (RCBs) increases. This research serves as an empirical foundation for the progression of green inclusive finance and the green transformation of rural areas.