How Can Financial Innovation Curb Carbon Emissions in China? Exploring the Mediating Role of Industrial Structure Upgrading from a Spatial Perspective

Within the sustainability framework, technological innovation’s impact is acknowledged. However, the environmental implications of institutional innovation, a crucial component of the innovation system, remain unclear, necessitating further research. This paper focuses on financial innovation as a representative of institutional innovation, exploring its relationship with carbon emissions. Utilizing panel data from 30 Chinese provinces spanning 2011 to 2022, we establish a spatial Durbin model and a mediating effects model to delve into the intricate relationships among financial innovation, industrial structure upgrading, and carbon emissions. Our findings reveal that: (1) Financial innovation significantly contributes to the upgrading of industrial structures both locally and in neighboring regions; (2) Both financial innovation and industrial structure upgrading effectively mitigate carbon emissions, with the latter playing a mediating role; (3) All three studied factors exhibit spatial clustering effects; (4) The suppressive effect of financial innovation on carbon emissions exhibits a notable spatial spillover. Compared to recent studies, this work innovatively explores the mediating impact mechanism of financial innovation suppressing carbon emissions, particularly demonstrating the spatial spillover characteristics of the mediating effect among the three variables. As China is a major carbon emitter and emerging economy, these insights offer valuable insights for global carbon governance.