Is financial development in China green? Evidence from city level data

Abstract

This paper examines the impact of financial development on environmental degradation in China using the city level data over the period 2007–2014. To achieve this task, the Seemingly Unrelated Regression (SUR) model is used. The empirical results show that financial development is helpful to improve the water quality but leads to more SO2 emissions in China. In particular, the financial development of China's big cities increases the burden on both air and water quality. Compared with other regions, financial development is influential in improving the environment in developed regions, namely the eastern coast of China. Together with financial development, the impacts of regulations such as “Beijing Olympic Air Control” and “Green Credit Guidelines” have significantly improved the quality of the environment. Moreover, the findings reveal that cities with higher provincial financial sector output have lower SO2 emissions and waste water discharge.