IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/91310.html
   My bibliography  Save this paper

Financial development and industrial pollution

Author

Listed:
  • De Haas, Ralph
  • Popov, Alexander

Abstract

We study the impact of financial market development on industrial pollution in a large panel of countries and industries over the period 1974-2013. We find a strong positive impact of credit markets, but a strong negative impact of stock markets, on aggregate CO2 emissions per capita. Industry-level analysis shows that stock market development (but not credit market development) is associated with cleaner production processes in technologically "dirty" industries. These industries also produce more green patents as stock markets develop. Moreover, our results suggest that stock markets (credit markets) reallocate investment towards more (less) carbon-efficient sectors. Together, these findings indicate that the evolution of a country's financial structure helps explain the non-linear relationship between economic development and environmental quality documented in the literature.

Suggested Citation

  • De Haas, Ralph & Popov, Alexander, 2018. "Financial development and industrial pollution," LSE Research Online Documents on Economics 91310, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:91310
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/91310/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martin, Philippe & Rey, Helene, 2004. "Financial super-markets: size matters for asset trade," Journal of International Economics, Elsevier, vol. 64(2), pages 335-361, December.
    2. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214.
    3. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    4. Luc Laeven & Fabian Valencia, 2020. "Systemic Banking Crises Database II," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 307-361, June.
    5. Daron Acemoglu & Ufuk Akcigit & Douglas Hanley & William Kerr, 2016. "Transition to Clean Technology," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 52-104.
    6. Philippe Aghion & Antoine Dechezleprêtre & David Hémous & Ralf Martin & John Van Reenen, 2016. "Carbon Taxes, Path Dependency, and Directed Technical Change: Evidence from the Auto Industry," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 1-51.
    7. Ross Levine & Chen Lin & Zigan Wang & Wensi Xie, 2018. "Bank Liquidity, Credit Supply, and the Environment," Working Papers id:12565, eSocialSciences.
    8. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    9. Holtz-Eakin, Douglas & Selden, Thomas M., 1995. "Stoking the fires? CO2 emissions and economic growth," Journal of Public Economics, Elsevier, vol. 57(1), pages 85-101, May.
    10. Asli Demirgüç-Kunt & Erik Feyen & Ross Levine, 2013. "The Evolving Importance of Banks and Securities Markets," The World Bank Economic Review, World Bank, vol. 27(3), pages 476-490.
    11. Martin, Ralf & de Preux, Laure B. & Wagner, Ulrich J., 2014. "The impact of a carbon tax on manufacturing: Evidence from microdata," Journal of Public Economics, Elsevier, vol. 117(C), pages 1-14.
    12. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 353-377.
    13. Susmita Dasgupta & Benoit Laplante & Hua Wang & David Wheeler, 2002. "Confronting the Environmental Kuznets Curve," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 147-168, Winter.
    14. Thorsten Beck, 2009. "The Econometrics of Finance and Growth," Palgrave Macmillan Books, in: Terence C. Mills & Kerry Patterson (ed.), Palgrave Handbook of Econometrics, chapter 25, pages 1180-1209, Palgrave Macmillan.
    15. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June.
    16. Hettige, Hemamala & Mani, Muthukumara & Wheeler, David, 2000. "Industrial pollution in economic development: the environmental Kuznets curve revisited," Journal of Development Economics, Elsevier, vol. 62(2), pages 445-476, August.
    17. Narayanan, M P, 1985. "Managerial Incentives for Short-term Results," Journal of Finance, American Finance Association, vol. 40(5), pages 1469-1484, December.
    18. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.
    19. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 609-639, Elsevier.
    20. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
    21. Duygan-Bump, Burcu & Levkov, Alexey & Montoriol-Garriga, Judit, 2015. "Financing constraints and unemployment: Evidence from the Great Recession," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 89-105.
    22. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 173-222.
    23. Hsu, Po-Hsuan & Tian, Xuan & Xu, Yan, 2014. "Financial development and innovation: Cross-country evidence," Journal of Financial Economics, Elsevier, vol. 112(1), pages 116-135.
    24. Thorsten Beck & Ross Levine (ed.), 2018. "Handbook of Finance and Development," Books, Edward Elgar Publishing, number 16685.
    25. Richard Schmalensee & Thomas M. Stoker & Ruth A. Judson, 1998. "World Carbon Dioxide Emissions: 1950-2050," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 15-27, February.
    26. Manthos D. Delis & Kathrin de Greiff & Steven Ongena, 2018. "Being Stranded on the Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans," Swiss Finance Institute Research Paper Series 18-10, Swiss Finance Institute, revised May 2018.
    27. repec:bla:jfinan:v:59:y:2004:i:2:p:601-621 is not listed on IDEAS
    28. Kim, Woojin & Weisbach, Michael S., 2008. "Motivations for public equity offers: An international perspective," Journal of Financial Economics, Elsevier, vol. 87(2), pages 281-307, February.
    29. Lybbert, Travis J. & Zolas, Nikolas J., 2014. "Getting patents and economic data to speak to each other: An ‘Algorithmic Links with Probabilities’ approach for joint analyses of patenting and economic activity," Research Policy, Elsevier, vol. 43(3), pages 530-542.
    30. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1999. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 941-975.
    31. John Asker & Joan Farre-Mensa & Alexander Ljungqvist, 2015. "Corporate Investment and Stock Market Listing: A Puzzle?," The Review of Financial Studies, Society for Financial Studies, vol. 28(2), pages 342-390.
    32. Beck, Thorsten & Levine, Ross, 2002. "Industry growth and capital allocation:*1: does having a market- or bank-based system matter?," Journal of Financial Economics, Elsevier, vol. 64(2), pages 147-180, May.
    33. Brown, James R. & Martinsson, Gustav & Petersen, Bruce C., 2017. "Stock markets, credit markets, and technology-led growth," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 45-59.
    34. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    35. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-1368, December.
    36. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-1262, December.
    37. Hettige, Hemamala & Lucas, Robert E B & Wheeler, David, 1992. "The Toxic Intensity of Industrial Production: Global Patterns, Trends, and Trade Policy," American Economic Review, American Economic Association, vol. 82(2), pages 478-481, May.
    38. Raymond Fisman & Inessa Love, 2007. "Financial Dependence and Growth Revisited," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 470-479, 04-05.
    39. Salinger, Michael, 1992. "Value Event Studies," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 671-677, November.
    40. Bronwyn H. Hall & Nathan Rosenberg (ed.), 2010. "Handbook of the Economics of Innovation," Handbook of the Economics of Innovation, Elsevier, edition 1, volume 1, number 1.
    41. Asli Demirgüç-Kunt & Ross Levine (ed.), 2018. "Finance and Growth," Books, Edward Elgar Publishing, number 17120.
    42. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hongxin Yu & Yaohui Jiang & Zhaowen Zhang & Wen-Long Shang & Chunjia Han & Yuanjun Zhao, 2022. "The impact of carbon emission trading policy on firms’ green innovation in China," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-24, December.
    2. Christina Atanasova & Eduardo S. Schwartz, 2019. "Stranded Fossil Fuel Reserves and Firm Value," NBER Working Papers 26497, National Bureau of Economic Research, Inc.
    3. Tian Xiong & Kaan Celebi & Paul J. J. Welfens, 2022. "OECD countries’ twin long-run challenge: The impact of aging dynamics and increasing natural disasters on savings ratios," International Economics and Economic Policy, Springer, vol. 19(4), pages 741-759, October.
    4. Hasan, Md. Bokhtiar & Wieloch, Justyna & Ali, Md. Sumon & Zikovic, Sasa & Uddin, Gazi Salah, 2023. "A new answer to the old question of the environmental Kuznets Curve (EKC). Does it work for BRICS countries?," Resources Policy, Elsevier, vol. 87(PB).
    5. Kin Sibanda & Rufaro Garidzirai & Farai Mushonga & Dorcas Gonese, 2023. "Natural Resource Rents, Institutional Quality, and Environmental Degradation in Resource-Rich Sub-Saharan African Countries," Sustainability, MDPI, vol. 15(2), pages 1-11, January.
    6. Destek, Mehmet Akif & Sinha, Avik & Özsoy, Ferda Nakıpoglu & Zafar, Muhammad Wasif, 2023. "Capital Flow and Environmental Quality at Crossroads: Designing a Sustainable Policy Framework for the Newly Industrialized Countries," MPRA Paper 117560, University Library of Munich, Germany.
    7. Magdalena Ziolo & Beata Zofia Filipiak & Iwona Bąk & Katarzyna Cheba & Diana Mihaela Tîrca & Isabel Novo-Corti, 2019. "Finance, Sustainability and Negative Externalities. An Overview of the European Context," Sustainability, MDPI, vol. 11(15), pages 1-35, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ralph De Haas & Alexander Popov, 2023. "Finance and Green Growth," The Economic Journal, Royal Economic Society, vol. 133(650), pages 637-668.
    2. De Haas, Ralph & Popov, Alexander, 2019. "Finance and carbon emissions," Working Paper Series 2318, European Central Bank.
    3. Drudi, Francesco & Moench, Emanuel & Holthausen, Cornelia & Weber, Pierre-François & Ferrucci, Gianluigi & Setzer, Ralph & Adao, Bernardino & Dées, Stéphane & Alogoskoufis, Spyros & Téllez, Mar Delgad, 2021. "Climate change and monetary policy in the euro area," Occasional Paper Series 271, European Central Bank.
    4. Didier, Tatiana & Levine, Ross & Llovet Montanes, Ruth & Schmukler, Sergio L., 2021. "Capital market financing and firm growth," Journal of International Money and Finance, Elsevier, vol. 118(C).
    5. Lööf, Hans & Martinsson, Gustav & Mohammadi, Ali, 2017. "Finance and Innovative Investment in Environmental Technology: The Case of Sweden," Working Paper Series in Economics and Institutions of Innovation 445, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    6. James R. Brown & Gustav Martinsson & Bruce C. Petersen, 2013. "Law, Stock Markets, and Innovation," Journal of Finance, American Finance Association, vol. 68(4), pages 1517-1549, August.
    7. Thorsten Beck & Robin Döttling & Thomas Lambert & Mathijs Dijk, 2023. "Liquidity creation, investment, and growth," Journal of Economic Growth, Springer, vol. 28(2), pages 297-336, June.
    8. Aghion, Philippe & Boneva, Lena & Breckenfelder, Johannes & Laeven, Luc & Olovsson, Conny & Popov, Alexander & Rancoita, Elena, 2022. "Financial Markets and Green Innovation," Working Paper Series 2686, European Central Bank.
    9. Popov, Alexander, 2017. "Evidence on finance and economic growth," Working Paper Series 2115, European Central Bank.
    10. Michalô °€ Brzozowski, 2020. "Impact of Credit Market Development and Stability on Productivity: New Evidence from the Industry Level," Annals of Economics and Finance, Society for AEF, vol. 21(1), pages 111-129, May.
    11. Morganti, Patrizio & Garofalo, Giuseppe, 2019. "Reassessing the law, finance, and growth nexus after the recent Great recession," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 229-250.
    12. Stern, David I., 2004. "The Rise and Fall of the Environmental Kuznets Curve," World Development, Elsevier, vol. 32(8), pages 1419-1439, August.
    13. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
    14. Cameron Hepburn & Jacquelyn Pless & David Popp, 2018. "Policy Brief—Encouraging Innovation that Protects Environmental Systems: Five Policy Proposals," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 154-169.
    15. Wang, Ying & Li, Mingsheng, 2022. "Credit policy and its heterogeneous effects on green innovations," Journal of Financial Stability, Elsevier, vol. 58(C).
    16. Ezcurra, Roberto, 2007. "Is there cross-country convergence in carbon dioxide emissions?," Energy Policy, Elsevier, vol. 35(2), pages 1363-1372, February.
    17. De Haas, Ralph & Popov, Alexander, 2019. "Finance and decarbonisation: why equity markets do it better," Research Bulletin, European Central Bank, vol. 64.
    18. Azomahou, Theophile & Laisney, Francois & Nguyen Van, Phu, 2006. "Economic development and CO2 emissions: A nonparametric panel approach," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1347-1363, August.

    More about this item

    Keywords

    financial development; industrial pollution; innovation; reallocation;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:91310. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.