Financial Development and Industrial Pollution

46 Pages Posted: 12 Jul 2018

See all articles by Ralph De Haas

Ralph De Haas

European Bank for Reconstruction and Development; Tilburg University - Department of Finance

Alexander A. Popov

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: July 12, 2018

Abstract

The 2015 Paris Climate Conference put finance at the heart of the debate on environmental degradation. But what exactly is the relationship between finance and environmental pollution? This paper analyses the mechanisms that connect financial development, industrial composition and environmental degradation, as measured by carbon dioxide emissions. It finds that when credit markets develop, polluting industries emit more CO2, but that when stock markets grow, these industries start to emit less. One important mechanism is 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 when stock markets expand.

Keywords: Financial development, industrial pollution, innovation, reallocation.

JEL Classification: G10, O4, Q5.

Suggested Citation

De Haas, Ralph and Popov, Alexander A., Financial Development and Industrial Pollution (July 12, 2018). EBRD Working Paper No. 217. Available at SSRN: https://ssrn.com/abstract=3212660 or http://dx.doi.org/10.2139/ssrn.3212660

Ralph De Haas (Contact Author)

European Bank for Reconstruction and Development ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom

HOME PAGE: www.ebrd.com

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Alexander A. Popov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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