Financial Development Research Articles

Promoting environmental sustainability: A policy perspective on hydroelectric power generation, foreign direct investments, and financial development

In today's rapidly evolving world, characterized by the menace of global warming and the ever-pressing call for sustainable energy solutions, the trilogy of hydroelectric power generation, foreign direct investment, and environmental quality is a compelling and indispensable dimension; all of which necessitate simultaneous consideration. In this quest, this research article aims to explore the nexus between hydroelectric power generation, foreign direct investment, and sustainability—within the framework of financial development. To this end, we have utilized annual data of the world's ten largest hydroelectric power-generating countries in the year 2021 for the period 1992–2019, and utilize the Westerlund-Edgerton LM Bootstrap, Augmented Mean Group, and Dumitrescu-Hurlin panel bootstrap causality methods as our main econometrics' batteries. Based on the empirical outcomes that study entails that financial development, foreign direct investments, and increasing economic growth reduce the environmental quality. We observed that hydroelectric power generation is an important driving force on environmental quality. The empirical outcomes further infer that as the financial development levels of countries increase, the positive impact of hydroelectric power generation on environmental quality becomes more significant. The study findings will help policymakers to organize environmental quality strategies that are more realistic and accurate.

Exploring the impact of financial development on energy intensity in a global study: Do levels of innovation and technology matter?

The present study aims to investigate the effect of financial development on energy intensity (EI) at different levels of innovation and technology. In addition, this study seeks to answer whether financial development affects EI and how such effect alters in the presence of varying levels of innovation and technology. To this aim, a panel smoothing transition regression (PSTR) method was used on a sample of OPEC + countries during 2000–20. Sectors of financial development affect EI at various levels of innovation and technology differently. Based on the results, the development of the banking sector and stock market increases EI to a certain level of the threshold variable (0.28 and 0.21 %, respectively), which is research and development (R&D) expenditure as a percentage of gross domestic production (GDP). Total financial development affects EI slightly differently. The above-mentioned process reduces EI up to a certain level of the threshold (0.25 %). Then, the process decreases EI more significantly. The present study aims to assess the specific effect of financial development on EI based on the level of innovation and technology. The results indicate that the behavior of the evaluated countries, which plays a significant role in proven oil reserves, crude oil production, and oil trade in the world, becomes similar to that of developed countries after reaching a certain threshold level of innovation and technology.

Sustainable development goals in emerging markets: Aligning the role of financial inclusion in promoting environmental quality of the Next‐11 economies

AbstractPursuing sustainable development has emerged as a paramount global objective, with the United Nations' Sustainable Development Goals (SDGs) serving as a guiding framework. Increasing environmental degradation is associated with increased greenhouse gas emissions, deforestation, industrial waste, fossil fuel depletion, and loss of biodiversity. This study has analyzed the effect of financial inclusion on ecological sustainability while controlling the effect of financial development, energy consumption, economic growth, urbanization, and trade openness in the Next‐11 economies from 1995 to 2019. The study develops the financial inclusion index through principal components analysis by inculcating three demand‐side and three supply‐side factors of financial inclusion. To analyze the developed model, various first‐generation and second‐generation techniques are applied. The results of Westerlund co‐integration reveal significant long‐run co‐integration among the series. The long‐run elasticities are estimated through dynamic common correlated effect estimation and generalized method of moments where results reveal that FI helps to secure environmental sustainability by reducing the ecological footprint, hence it works on the SDG framework. Economic growth and financial development are found to be the root causes of increasing ecological footprint. So, it is the penetration of excessive credit, not the financial inclusivity which needs to be directed toward sustainability. It is suggested that the governments of Next‐11 countries should steer the capital toward sustainable usage and should continue facilitating financial services to curtail environmental degradation. Our findings have significant repercussions for Next‐11 countries, giving decision makers fresh perceptions of financial inclusion and development implications.

Strong financial regulation and enterprise digital innovation: promoting or inhibiting?

ABSTRACT Modern financial regulatory systems are vital in bridging the gap between digital and real economies. In this context, enterprises have the opportunity to achieve digital innovation transformation. This study examines the causal relationship between strong financial regulation and enterprise digital innovation using a quasi-natural experiment, focusing on the ‘Guiding Opinions on Regulating the Asset Management Business of Financial Institutions’ (NAMR). We observed a significant improvement in enterprises’ level of digital innovation after the NAMR implementation. Channel analysis confirms the micro-mechanisms of strong financial regulation, eased corporate financing constraints, increased R&D investment, and digital innovation. Furthermore, digital innovation driven by strong financial regulation can significantly improve corporate profitability. We also found that the positive effect of strong financial regulation on enterprise digital innovation is particularly significant in non-state-owned enterprises, highly competitive industries, and regions with high financial development levels. This study expands the understanding of how strong financial regulation affects enterprises’ digital innovation, with practical significance for understanding the relationship between financial regulation, corporate financial investment, and innovation decision-making.

Local credit and international trade

AbstractThis study investigates the relationship between local access to credit and exports. A model of finance‐constrained exporters and bank entry decisions generates trade equations that we estimate with a panel of Brazilian municipal‐level trade and banking data. Literature in the financial development field has struggled to deal with the endogenous relationship between finance and economic outcomes. To untangle this reverse causality, we instrument bank presence by using geographic characteristics particular to the bank branching decision. The results show that local bank access matters: increases in bank branches per person increases bilateral exports and varieties at the city‐ and industry levels. The effect is even stronger for industries where the credit constraint binds, specifically those that use less internal funds and have more difficulty producing collateral.

Is environmental information disclosure driving green energy development? Contextual evidence from Chinese city level data in the lens of sustainability

As an important supplement to mandatory environmental regulation, third-party participation in environmental regulation has become an important driving force for the comprehensive green transformation of economic and social development. Environmental information disclosure (EID) has become a widely used form of third-party participation ecological regulation, and the study of its impact on green energy development (GED) is receiving more and more academic attention. However, the research on this issue is still insufficient in academia. Based on resource-based theory and information processing theory, with IPE project of pollution information survey in China as an exogenous impact, this paper analyzes the causal impact of EID for GED using panel data of 285 Chinese cities from 2000 to 2020. The findings revealed that EID is a strong driver of GED in the long run, further amplified by the smart city pilot program. Besides, industrial structure transformation (IST), substantive green technological innovation (SGTI), non-substantive green technological innovation (NOSGTI), and green finance development (GFD) are important mediating mechanisms through which EID facilitates the GED. Concerning resource endowments of different regions and cities, the heterogeneity test asserted that the promotion effect of EID for GED is best in resource-based cities and old industrial parks. These results emphasize the importance of public participation in urban sustainable development and provide new ideas for promoting green growth.

Net‐Zero Transition Pathways in Belt and Road Economies: Insights From Threshold Effects and Heterogeneous Analysis

ABSTRACTGiven the pressing need for economies to mitigate climate change and champion carbon neutrality, this study investigates the threshold effects of financial development and foreign direct investment (FDI) on carbon dioxide (CO₂) emissions in Sub‐Saharan Africa (SSA) within the Belt and Road Initiative (BRI) bloc, taking into account the moderating role of the regulatory environment. Drawing on the environmental Kuznets curve and the pollution haven hypothesis, the study utilizes the dynamic generalized method of moments (GMM) modeling, proposed by Arellano and Bover, to analyze panel data from 37 SSA countries spanning 1990–2022. The findings reveal that financial development in the banking, financial, and private sectors, along with FDI outflows, is associated with a reduction in CO₂ emissions. Conversely, FDI inflows are linked to increased CO₂ emissions. A curvilinear relationship is observed, where initial increases in financial development and FDI correlate with higher emissions, which decline beyond a certain threshold. Stronger regulations enhance the positive impact of financial development on reducing CO₂ emissions. Finally, the findings show a significant heterogeneous effect across the SSA regional blocs. These findings underscore the critical need for implementing stringent environmental regulations and promoting sustainable financial practices to mitigate negative environmental impact. This research provides both theoretical and practical insights into fostering a carbon neutrality agenda and advancing Sustainable Development Goal 13.

Bank competition and ESG performance‐evidence from Chinese listed firms

AbstractThis study employs a two‐way fixed effects model to investigate the influence of bank competition on ESG performance of local firms and its underlying mechanisms based on the geographical distribution of bank branches and firms. Our results show that the increased level of competition among banks contributes positively to the ESG performance of firms and the promotion effect is more prominent in small firms, young firms, and nonstate‐owned firms. Industry heterogeneity analysis indicates that bank competition could be more beneficial for the sustainable development of low‐pollution, low‐tech industries, and industries that have a higher linkage with the financial industry. The mechanism analysis further reveals the mediating effect of financial constraints, green innovation, and moral hazards on firms' ESG performance. This study extends the existing understanding of the firm‐level consequences of bank competition and sheds light on the financial development drivers of corporate ESG performance in emerging market countries.

The Coupling Coordination Relationship and Driving Factors of the Digital Economy and High-Quality Development of Rural Tourism: Insights from Chinese Experience Data

Globally, rural tourism development faces challenges such as inadequate infrastructure, insufficient marketing resources, and unreliable service quality, all of which limit its potential. However, digital technology offers unprecedented opportunities to address these barriers. China’s experience in integrating digital technology into rural tourism provides a valuable case study for understanding the digitalization of rural tourism. This study constructs an index system to assess the coupling coordination relationship between the digital economy and the high-quality development of rural tourism (HQDRT). By employing methods such as the entropy method, coupling coordination degree model, obstacle factor model, and geographic detector, the study examines the evolution of this coupling coordination relationship and its driving mechanisms across 31 provinces (including regions and municipalities) in China from 2012 to 2021. The findings reveal that (1) The development of the digital economy generally lags behind that of the rural tourism, but the coupling coordination relationship between the two is steadily improving. (2) The level of coupling coordination increases from west to east, with spatial distribution patterns evolving from ‘antagonism’ to ‘adaptation’ and then to ‘coordination’ as they move eastward. Most provinces belong to the ‘adaptation’ type. (3) From a nationwide perspective, the primary obstacles impeding the development of the digital economy include an insufficient internet penetration rate, which consequently leads to underdeveloped internet finance development and telecommunications industry development. The major barriers to the HQDRT stem from an inadequate number of tourists and a lack of physical infrastructure. (4) Population density, consumer spending, and R&D are significant drivers of the coupling coordination relationship, with the interaction between urbanization rates and other factors generally weakening the degree of coupling.

The moderating effects of environmental and regulatory quality on financial development to promote sustainable FDI inflows in Canada

Stimulating sustainable FDI through the connection of financial development and its moderating relationships with environmental quality and regulatory quality emerges as a crucial agenda nowadays. This study investigates into this relationship using quarterly data from 1990Q1 to 2022Q4 for Canada; employing ARDL bound tests, Granger Causality, and FM-OLS econometric models. Foreign direct investment is the dependent variable of this study. The findings confirm significant long-run relationships among financial development, stock market development, and the moderating effects of environmental and regulatory quality on FDI inflows in the Canadian economy. Conversely, in the short run, financial development, stock market development, and economic growth exhibit bidirectional causal links with FDI, while environmental quality, regulatory quality, and trade openness demonstrate unidirectional causal links with FDI. The error correction mechanism indicates that all variables quickly return to equilibrium except trade openness. Robustness checks further confirm that all the variables have fully modified co-integrating relationship with FDI inflows including the moderating effects of environmental and regulatory quality which is the innovation in the FDI-Growth existing literature. Thus, policymakers are urged to prioritize environmental quality and regulatory quality, alongside other significant explanatory variables identified in this study to promote sustainable FDI inflows.

Harmonizing the complexities of financial development and fiscal decentralization in highly populated nations for monitoring environmental quality

The increasing challenges posed by global warming underscore the need to examine the contributing factors comprehensively. This study explores the complex interaction that enhances the financial autonomy of local governments (fiscal decentralization), the evolution of financial development, and the dynamics of the environment in China, India, and Pakistan, which are known as highly populated economies. This search fills a vacuum in the research literature by using financial development and fiscal decentralization together to measure the complex interaction by using the broad dataset that spans the years 1979–2019. It significantly advances scientific knowledge by highlighting the frequently disregarded triangle formed by fiscal decentralization, financial development, and environmental quality in emerging nations. Moreover, the study seeks to elucidate how fiscal decentralization affects financial growth and, in turn, the environment. The review acknowledges the possibility of varying results among nations. Strict econometric techniques that consider slope heterogeneity and cross-sectional dependence are used to guarantee the reliability of studies and conclusions. The results show that government money and GDP per capita have beneficial short-term effects on environmental quality. Simultaneously, financial growth positively and negatively impacts several factors, underscoring the complex dynamics at work in these crucial areas. Anticipated outcomes might provide a significant understanding of the fundamental factors influencing environmental quality in developing nations. This research is well-positioned to support the development of evidence-based policies by advising scholars and decision-makers on creating successful climate change mitigation plans.

Retraction Note: Unraveling the interplay between globalization, financial development, economic growth, greenhouse gases, human capital, and renewable energy uptake in Indonesia: multiple econometric approaches.

Retraction Note: Unraveling the interplay between globalization, financial development, economic growth, greenhouse gases, human capital, and renewable energy uptake in Indonesia: multiple econometric approaches.

Impact of Digital Inclusive Finance and Environmental Regulation on Eco‐Efficiency of Farmland Utilization in China

ABSTRACTThe farmland pollution has threatened the lifeblood of people's livelihoods through the soil‐to‐crop system, and the resulting food safety risks are becoming more and more pronounced. Digital inclusive finance (DIF) can provide convenient financial services for the eco‐transformation of farmland utilization. This study analyzed the spatial evolution pattern of eco‐efficiency of farmland utilization (EEFU) and DIF, empirically tested the impact of DIF on EEFU, and discussed the impact of DIF on EEFU with changes in the level of environmental regulatory intensity based on panel data from 2011 to 2022 in China. The results found that the development of EEFU and DIF is increasing, and the polarization phenomenon is constantly easing, but the absolute differences between different provinces in China have an expanding trend. DIF can improve the EEFU, and this promotion effect is more pronounced in eastern and central China, non‐grain‐producing areas, and areas with low levels of financial development. DIF will not be able to improve EEFU until environmental regulation has reached a certain level. China should fully leverage the positive role of DIF and environmental regulations in promoting the EEFU, provide more differentiated financial products, financial tools, and financial models for the eco‐transformation of farmland utilization, and explore a path for eco‐transformation of farmland utilization that complements environmental regulations and development of market‐inclusive finance.

The influence of economic determinants on CO2 emissions in Belt and Road Initiative (BRI) countries.

CO2 emissions in Belt and Road Initiative (BRI) countries are precisely influenced by economic determinants, requiring a comprehensive perspective. The BRI can augment its prospects for sustainable development by acknowledging the obstacles it faces and promoting global collaboration. Examining the CO2 emission (CO2e) in BRI countries in response to economic determinants such as financial development (FD), income distribution (ID), foreign direct investment (FDI), economic complexity index (ECI), and economic growth (EG) will determine the study's long-term and short-term impacts. This study introduces a novel concept of CO2es by employing panel data from 1991 to 2020. Thus, the CD, Kao, Pedroni, FMOLS, and pooled mean group-autoregressive distributed lag (PMG-ARDL) tests are utilized to assess cointegration. According to empirical findings, economic determinants (ECI, EG, FDI, and ID) have a statistically significant short-run and long-run impact on CO2e in BRI countries. Policymakers in BRI countries should integrate monetary development, FDI, and CO2es to foster EG, attract FDI, and promote sustainable development through regulatory frameworks.

A Multi-Agent Financial Investment Decision Method Based on Evolutionary Game

Data-driven smart investment decisions are important for financial development, which has not received much attention from academia. As a result, this paper resorts to the evolutionary game theory, and proposes a novel multi-agent financial investment decision method. Specifically, an evolutionary game theory-based decision-making approach is formulated as the main model for the research purpose. By considering the strategic choices and adaptability among various entities, a comprehensive analysis of the behavior and decision-making process of entities in the financial market is achieved. This paper combines stock exchanges and financial data providers (Bloomberg and Thomson Reuters) to conduct case studies on this method, verifying its effectiveness and feasibility in practical applications. By comparing traditional financial investment decision-making methods, it can be seen that the proposal has significant advantages in improving investment efficiency, reducing risks, and responding to market volatility. This paper delves into the multi-agent financial investment decision-making method based on the evolutionary game, providing new ideas and methods for academic research and practical applications in the financial field.

Green Financial Policy for Fostering Green Technological Innovation: The Role of Financing Constraints, Science Expenditure, and Heightened Industrial Structure

The environment has become an increasing concern due to the accelerated expansion of the world’s economy. Green finance is a crucial strategy for China to address challenges in fostering green innovation and achieving sustainable development. By employing the difference-in-differences (DID) method, this study assessed the influence of green financial policy (GFP) on green technological innovation (GTI) in the Yangtze River Economic Belt (YREB). The results indicate that GFP significantly improves GTI, especially in cities with a lower level of green finance development, cities with a medium level of GTI, and cities upstream of the Yangtze River. A mechanism analysis found that GFP promotes GTI in the YREB by alleviating financing constraints and increasing science expenditures. However, it fails to improve GTI through the heightened industrial structure. The findings provide empirical proof and policy direction for the reformation of green financing and the achievement of ecological transformation in the river basin economy in accordance with the ‘dual-carbon’ goal.

Concentrated bank market and SMEs’ collateral issues: a study of the firms of developing Asian countries

Collateral is a significant challenge for small and medium enterprises (SMEs) in acquiring formal credit. Bank market concentration can cause to increase collateral demand through enhancing bank market power. This study explores the relationship between bank market concentration and the collateral challenges faced by SMEs in accessing bank credit by employing a probit regression model. The analysis utilizes a sample of over 25,000 firms from 19 developing Asian nations. The datasets combine firm-level data sourced from the Business Environment and Enterprise Performance Survey (BEEPS) with country-level financial data obtained from the Global Financial Development Data (GFDD) which are provided by the World Bank. The results reveal a significant positive correlation between bank market concentration and the collateral challenges encountered by SMEs in developing Asian countries. In markets characterized by high levels of banking concentration, financial institutions tend to exhibit risk-averse behavior, manifesting in an increased propensity to demand collateral for both SME and large enterprise loans. Consequently, this heightened bank concentration exerts additional pressure on SMEs in acquiring bank credit. To foster an environment conducive to SME financing, countries with high levels of banking concentration should enact regulatory measures aimed at managing and constraining market concentration levels.

Exploring the impact of industrialization and electricity use on carbon emissions: The role of green FinTech in Asian countries using an asymmetric panel quantile ARDL approach

PurposeThe purpose of this study is to investigate how industrialization, financial development, electricity consumption, trade openness, and green FinTech affect on carbon emissions asymmetrically in Asian countries. DesignMethod/Approach: The study examined 29 years of panel data from 39 Asian countries from 1995 to 2022, sourced from World Development Indicators (WDI) and the International Monetary Fund (IMF). The study constructs a green financial technology index using principal component analysis (PCA). The study utilizes an Asymmetric Panel Quantile Autoregressive Distributive Lag (A-QARDL) model with pooled mean group (PMG) specifications to explore effects that exhibit cross-sectional homogeneous in the long-run, but heterogeneous in the short-run effects. FindingsIndustrialization and financial development have a strongly asymmetric impact on carbon emissions. Industrialization causes an increase in carbon emissions at various quantiles, while green FinTech plays a crucial role in mitigating these carbon emissions. Trade openness and domestic credit to the private sector also help reduce carbon emissions. Research limitations and implicationsThe study emphasizes the significance of employing green FinTech techniques and using renewable energy sources to meet sustainable industrialization and sustainability goals in Asian countries. The policy consequences include promoting environmentally friendly industrial practices, encouraging green financial investments, and boosting government financing for private sector research and development to mitigate carbon emissions. Originality/valueThe study employs robust modeling to analyze the role of green FinTech to enhance industrial sustainability. Both Industrialization and deindustrialization have an impact on economic emissions, and the potential of green FinTech's to promote sustainability contributes to the environment protection strategy.

Can financial development help alleviate the resource curse? Evidence from 286 cities in China

The resource curse adversely affects the sustainability of economic growth. A sound financial system helps improve capital rational allocation, which may be an effective path for alleviating the resource curse. Thus, from both theoretical and empirical perspectives, using Chinese 286 cities panel data from 2003 to 2018, this study examines the effects and potential mechanisms of financial development on the resource curse. For this purpose, a two–sector endogenous growth model is first constructed for the theoretical analysis, while panel vector autoregression, Hansen's threshold regression, and dynamic panel models are used for further empirical investigation. The results show that the resource curse is widespread across Chinese cities. Financial development can alleviate such a curse when it passes the threshold value; however, most cities have not passed this value yet. Foreign direct investment, education, and technology have a positive mediating effect on financial development and its impact on the resource curse.

Does development in financial markets and institutions affect green growth? Empirical evidence from India

Abstract This study delves into the intricate connection between financial development and green growth in India. The study considers the development in financial institutions and financial markets as a proxy of financial development. By employing an autoregressive distributed lag model for the period 1990–2019, the results reveal a mixed impact of financial development on green growth in India. The study confirms a cointegrating relationship among the interested variables through the autoregressive distributed lag-bound test approach. Further, the results reported that financial institutions have a positive and statistically significant influence on green growth in India both in the short and long terms. However, financial markets have no statistically significant effect on green growth. These findings are important for policymakers, offering valuable insights into India’s intricate interplay between financial development and green growth. These findings suggest the way for targeted policy interventions to achieve green growth and better investment strategies in India’s economic landscape.