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Carbon emissions and banking stability: Global evidence

Author

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  • Agbloyor, Elikplimi Kolma
  • Dwumfour, Richard Adjei
  • Pan, Lei
  • Yawson, Alfred

Abstract

This paper examines the impact of per capita CO2 emissions on banking stability. To identify the causal effect of carbon emissions on the stability of banking system, we use plausibly exogenous source of variations in energy use as an instrumental variable (IV) for CO2 emissions. Using data for a panel of 122 countries over the period 2000-2013, our IV regression results indicate that there is an inverted U-shaped relationship between per capita CO2 emissions and banking stability. Our findings reveal that CO2 emissions have a positive effect on banking stability at a low level of emissions and an adverse effect at a higher emissions level. We also find that industrialization as proxied by the ratio of manufacturing value added to GDP can be a potential channel through which per capita CO2 emissions affect banking stability. Our results are robust to alternative specifications and have important implications for policy on banking stability.

Suggested Citation

  • Agbloyor, Elikplimi Kolma & Dwumfour, Richard Adjei & Pan, Lei & Yawson, Alfred, 2021. "Carbon emissions and banking stability: Global evidence," MPRA Paper 111092, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:111092
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    File URL: https://mpra.ub.uni-muenchen.de/111092/1/MPRA_paper_111092.pdf
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    Cited by:

    1. Myvel Nabil, 2024. "Assessment of the Relationship among Climate Change, Green Finance and Financial Stability: Evidence from Emerging and Developed Markets," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 16(2), pages 1-51, February.
    2. Andy Esterhuizen & Jaungura Kaune & Valdemar Undji, 2025. "Financial stability under climate stress: Empirical evidence from Namibia," ERSA Working Paper Series, Economic Research Southern Africa, vol. 0.
    3. Esengül Özdemir Altınışık & Melek Yıldız, 2025. "The Impact of Climate Resilience on Banks’ Financial Stability," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 10(SI), pages 360-382.

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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