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The path towards sustainable finance: Venture capital and air pollution in China

Author

Listed:
  • Hua, Yue
  • Sun, Weizeng
  • Zhao, Danning

Abstract

Financing sustainable growth has attracted global attention and discussion in recent years. This study investigates the effect of venture capital, as a potential source of sustainable finance, on air pollution in China from 2003 to 2016. Using the unique Government Guidance Fund as instrumental variable, we find that venture capital activities have significantly reduced local air pollution in cities of China. To be specific, a one standard deviation increase in the VC amount leads to 4% decrease in PM2.5 concentration and 6% reduction in industrial SO2 emission. The effects are insensitive to a wide range of robustness tests. Cities characterized by more rigorous environmental supervision, superior business environments, and stronger innovation incentives benefit more from venture capital activities. We further show that venture capital helps improve local air quality by boosting general and green innovation, increasing the investment of new green enterprises, as well as crowding out the investment of polluting industries.

Suggested Citation

  • Hua, Yue & Sun, Weizeng & Zhao, Danning, 2023. "The path towards sustainable finance: Venture capital and air pollution in China," China Economic Review, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:chieco:v:79:y:2023:i:c:s1043951x23000640
    DOI: 10.1016/j.chieco.2023.101979
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    More about this item

    Keywords

    Sustainable finance; Venture capital; Air pollution; Innovation; China;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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