The Relationship between Trade Liberalization, Financial Development and Carbon Dioxide Emission—An Empirical Analysis

Abstract

In recent years, the global economy has become more closely related among countries, and people’s pursuit of economic growth has caused the destruction of the environment. This paper selected panel data from 30 provinces in China from 1997 to 2020 to investigate the dynamic relationship between trade liberalization, financial development and carbon dioxide emissions by constructing a PVAR model. We also consider technology as an important variable for studying the effect on carbon dioxide emissions. We draw the following conclusions. First, financial development promotes carbon dioxide emissions, while trade liberalization has no significant impact on carbon dioxide emissions. Second, China’s trade liberalization promotes financial development, which has limited support for international trade. Third, there is a two-way causal relationship between financial development and carbon dioxide emissions, and there is also a two-way causal relationship between trade liberalization and financial development. Finally, there is a significant inverted “U” curve relationship between trade liberalization and innovation efficiency, environmental regulation and innovation. According to the results, we believe that openness to trade impacts emissions of carbon dioxide, opening a new function path: namely, trade openness and financial development result in high carbon dioxide emissions; consequently, China has relied on this process in the development of their financial system.