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Carbon dioxide emissions, financial development and political institutions

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Abstract

The paper empirically examines whether and how political institutions shape the nexus between finance and carbon dioxide (CO2) emissions. In a sample of developing and developed countries, it finds that financial development impedes green technology development and thus raises energy use and CO2 emissions, the effects that moderate with improvements in institutional quality. Despite so, there are differences between banks and stock markets, banking competition and concentration, and household and firm credit. Specifically, a more concentrated, less competitive bank-based financial system that lends more to households hinders green technology development and exaggerates energy use and CO2 emissions, and the impacts diminish when institutional quality enhances. Conversely, a more market-oriented financial system with a more competitive and less concentrated banking sector that lends more to private non-financial enterprises promotes green technology development and decreases energy use and CO2 emissions, the effects that weaken when the quality of political institutions betters.

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Notes

  1. The EKC hypothesis has been extensively studied and the literature continues to grow. Despite so, whether economic growth improves the environment remains controversial (see Dinda 2004 and Shahbaz and Sinha 2019 for a survey and references therein).

  2. https://knoema.com/atlas/ranks/CO2-emissions-per-capita.

  3. In Column (4) of Table 6, we evaluate the estimated value of \(\frac{{\partial y_{it} }}{\partial Lerner}\) and the associated standard deviation at different percentiles of \(\overline{free}\). We find a similar pattern.

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Acknowledgements

We are grateful to the editor G. Hondroyiannis and two anonymous referees for their constructive comments and suggestions that significantly improve the quality of our paper. This work was supported by a Korea University Grant. The usual disclaimer applies.

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Authors and Affiliations

  1. Department of Food and Resource Economics, Korea University, 145, Anam-ro, Seongbuk-gu, Seoul, 02841, Korea

    Dong-Hyeon Kim

  2. Department of International Business, Soochow University, 56, Sec. 1, Guiyang St., Zhongzheng Dist, Taipei, 10048, Taiwan

    Yi-Chen Wu

  3. Department of Economics, SungKyunKwan University, 25-2 Sungkyunkwan-ro, Jongno-gu, Seoul, 110-745, Korea

    Shu-Chin Lin

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  1. Dong-Hyeon Kim
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YCW contributed to software, validation and investigation. DHK was involved in the visualization, writing–reviewing and editing. SCL was involved in the conceptualization, methodology, software and writing—original draft preparation.

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Correspondence to Shu-Chin Lin.

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The authors, Dong-Hyeon Kim, Yi-Chen Wu and Shu-Chin Lin, declare that they have no relevant or material financial interests that relate to the research described in this paper.

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Appendix: A List of countries and summary statistics

Appendix: A List of countries and summary statistics

See Tables 7 , 8 , 9 .

Table 7 Country list
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Table 8 Summary statistics, 1984–2017
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Table 9 Correlation matrix
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Kim, DH., Wu, YC. & Lin, SC. Carbon dioxide emissions, financial development and political institutions. Econ Change Restruct 55, 837–874 (2022). https://doi.org/10.1007/s10644-021-09331-x

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