How Financial Development Mitigates Carbon Intensity: Insight from China’s 30 Provinces

Abstract

Given the importance of financial development in promoting socioeconomic green transition, this study used a balanced panel data set spanning China’s 30 provinces from 1995 to 2018 to investigate how financial development has reduced carbon emission intensity from linear and nonlinear perspectives. First, the quantile regression results indicated that financial development (FD) significantly eradicated carbon emission intensity (CEI) across all quantiles with minor fluctuations in an influential degree. Second, FD significantly reduced CEI in nearby and local areas after implementing spatial econometric models. Third, using a spatial mediating effect model, FD's promoting effects on technological innovation and industrial structure advancement were two channels to help reduce CEI. Third, using a spatial mediating effect model, FD's promoting effects on technological innovation and industrial structure advancement were two channels to help reduce CEI. Finally, the nonlinear relationship between FD and the CEI was identified at the national level using a panel threshold model with spatial elements to recognize the mediating effects of technological innovation and industrial structure advancement. These findings emphasized the importance of continuing to refine and develop the financial mechanism and financial market, encouraging firm R&D investment, and vigorously upgrading and optimizing the industrial structure to reduce China’s carbon emissions reduction intensity.