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The Effect of Financial Development on Energy Intensity in China

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  • Carlos Aller, Maria Jesus Herrerias, and Javier Ordóñez

Abstract

In this study, we analyse the relationship between financial development and energy intensity in 28 Chinese provinces over the period 1999 to 2014. Using a wide variety of financial development measures, as well as specific indicators capturing the level of state intervention in the financial system and the degree of market-driven financing in the economy, we examine whether limited access to finance acts as a barrier to reducing energy intensity. Our estimations control for variables such as state investment, stock market capitalization and the composition effect. Further, a GMM estimator is used to control for endogeneity in our models. Our results provide evidence that a poorly functioning financial system constrains the reduction of energy intensity across regions. However, the strength of these effects has been gradually declining over time, especially following the implementation of the Green Credit Policy. Limitations in domestic access to finance as well as the misallocation of funds and the efficient use of capital have policy implications, as they can reduce the incentives for investment in the energy sector. These findings are a source of considerable interest in light of the new policy based on green credit, and they highlight new opportunities as well as challenges to sustainable economic growth.

Suggested Citation

  • Carlos Aller, Maria Jesus Herrerias, and Javier Ordóñez, 2018. "The Effect of Financial Development on Energy Intensity in China," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    • Handle: RePEc:aen:journl:ej39-si1-aller
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    Cited by:

    1. Xiaoxiao Chu & Hong Geng & Wen Guo, 2019. "How Does Energy Misallocation Affect Carbon Emission Efficiency in China? An Empirical Study Based on the Spatial Econometric Model," Sustainability, MDPI, vol. 11(7), pages 1-16, April.
    2. Zhang, Dengjun & Xie, Yifan, 2022. "Customer environmental concerns and profit margin: Evidence from manufacturing firms," Journal of Economics and Business, Elsevier, vol. 120(C).
    3. Xiaowei Ding & Ruxu Jing & Kaikun Wu & Maria V. Petrovskaya & Zhikun Li & Alina Steblyanskaya & Lyu Ye & Xiaotong Wang & Vasiliy M. Makarov, 2022. "The Impact Mechanism of Green Credit Policy on the Sustainability Performance of Heavily Polluting Enterprises—Based on the Perspectives of Technological Innovation Level and Credit Resource Allocatio," IJERPH, MDPI, vol. 19(21), pages 1-26, November.
    4. Cao, Jianhong & Law, Siong Hook & Samad, Abdul Rahim Abdul & Mohamad, Wan Norhidayah W., 2023. "Internal mechanism analysis of the financial vanishing effect on green growth: Evidence from China," Energy Economics, Elsevier, vol. 120(C).
    5. Mohd Haizam Mohd Saudi & Obsatar Sinaga & Djoko Roespinoedji & Erlane K. Ghani, 2019. "The Impact of Technological Innovation on Energy Intensity: Evidence from Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 9(3), pages 11-17.
    6. Festus Fatai Adedoyin & Festus Victor Bekun & Kayode Kolawole Eluwole & Samuel Adams, 2022. "Modelling the Nexus between Financial Development, FDI, and CO 2 Emission: Does Institutional Quality Matter?," Energies, MDPI, vol. 15(20), pages 1-17, October.
    7. Goshu Desalegn & Maria Fekete-Farkas & Anita Tangl, 2022. "The Effect of Monetary Policy and Private Investment on Green Finance: Evidence from Hungary," JRFM, MDPI, vol. 15(3), pages 1-18, March.
    8. Adom, Philip Kofi & Amuakwa-Mensah, Franklin & Akorli, Charity Dzifa, 2023. "Energy efficiency as a sustainability concern in Africa and financial development: How much bias is involved?," Energy Economics, Elsevier, vol. 120(C).
    9. Mohd Irfan & Bamadev Mahapatra & Raj Kumar Ojha, 2023. "Energy Efficiency and Carbon Emissions in Developed and Developing Economies: Investigating the Moderating Role of Financial Development," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(2), pages 437-455, June.
    10. Halkos, George & Moll de Alba, Jaime & Todorov, Valentin, 2021. "Analyzing manufacturing sector and selected development challenges: A panel data analysis," Energy, Elsevier, vol. 235(C).

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    JEL classification:

    • F0 - International Economics - - General

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