Abstract
This study seeks to investigate the endogenous relationship between financial leverage, economic growth and environmental degradation in China by employing a the generalized moments method (GMM) panel vector autoregressive (PVAR) approach with a panel of data from China’s 30 provinces over the period 1997–2016. Three key results arise. First, financial leverage can significantly lessen economic growth, while economic growth decreases financial leverage. Second, economic growth provides an important impetus to boost carbon emissions. Finally, carbon emissions have inversely pushed up financial leverage. These results reflect to some extent China’s impressive rate of economic growth, which has been attained via continuously supporting inefficient state-owned enterprises and heavy and polluting industries through bank loans. The results are further supported by the variance decomposition. The findings provide valuable policy implications for deepening financial supply-side structure reform to transform and upgrade China’s real economy. These policy implications are conductive to developing a low-carbon economy.
Highlights
Since the global financial crisis of 2008, there has been upsurge in the awareness of financial leverage and its harmful impacts on economic growth among excessive debt accumulation and financial instability
There is a significant difference among the financial leverage, economic growth and environmental degradation of the 30 Chinese provinces
This paper quantitatively analyzes the dynamic relationship among financial leverage, economic growth and carbon emissions of 30 Chinese provinces by applying the panel vector autoregressive (PVAR) model
Summary
Since the global financial crisis of 2008, there has been upsurge in the awareness of financial leverage and its harmful impacts on economic growth among excessive debt accumulation and financial instability. China was heavily influenced by the current global financial crisis, resulting in a significant increase in its financial leverage ratio, while economic activity declined. The Chinese government adopted a 4 trillion yuan ($586 billion) stimulus package, which was announced on 9 November, 2008, to boost economic growth. China has been unable to continue the rapid output growth that occurred before the recession. China has entered into a new normal and faced mounting downward economic pressure. China’s financial leverage has strongly increased from 149%
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