Abstract
This study suggests an indirect effect of the financial markets on the environment and explores the transmission mechanisms through which financial market development affects carbon emissions in China. We identify three key mechanisms: i) sustainability, ii) production, and iii) consumption. Our results document that the sustainability mechanism helps mitigate emissions whereas the production mechanism triggers environmental degradation, and the impact of the latter is greater than the former in magnitude. However, once the negative externality of political corruption on financial market development is considered, the beneficial environmental effect dominates the degradation effect.
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