The impact and channel effects of banking competition and government intervention on carbon emissions: Evidence from China

Abstract

Carbon-emission reduction has become a consensus among the international community. In this study, we consider prefecture-level cities in China from 2000 to 2017 as the object, and use a bidirectional fixed-effects model, instrumental variables, and differential difference methods to examine the impact of banking competition on carbon emissions and the role of government intervention in China. The results show that intensifying banking competition will eventually increase Chinese cities’ carbon-emission levels. Increasing banking competition can not only promote investment into fixed assets, which will increase carbon emissions, but also facilitate technological innovation to reduce carbon emissions. Government intervention in the market is an important reason for this phenomenon, and will distort bank-credit behavior and amplify the effect of banking competition in promoting carbon emissions. The findings of this study enrich relevant theories and empirical evidence, as well as provide new perspectives and policy suggestions for emission-reduction practices in China and other emerging economies.