Finance and Green Growth

CentER Discussion Paper Series No. 2018-024

European Banking Center Discussion Paper Series No. 2018-001

70 Pages Posted: 4 Aug 2018 Last revised: 7 Jan 2021

See all articles by Ralph De Haas

Ralph De Haas

European Bank for Reconstruction and Development; Centre for Economic Policy Research (CEPR); Tilburg University - Department of Finance

Alexander A. Popov

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: July 16, 2018

Abstract

We study how countries' financial structure affects their transition to low-carbon growth. Using global industry-level data, we document that carbon-intensive industries reduce emissions faster in economies with deeper stock markets. Two channels underpin this stylized fact. First, stock markets reallocate investment towards energy-efficient sectors. Second, in countries with deeper stock markets, carbon-intensive sectors engage in more green innovation, resulting in lower carbon emissions per unit of output. Only one-tenth of these industry-level reductions in domestic emissions are offset by carbon embedded in imports. A firm-level analysis of an exogenous shock to the cost of equity in Belgium confirms our findings.

Keywords: financial development, industrial pollution, innovation, reallocation

JEL Classification: G10, O4, Q5

Suggested Citation

De Haas, Ralph and Popov, Alexander A., Finance and Green Growth (July 16, 2018). CentER Discussion Paper Series No. 2018-024, European Banking Center Discussion Paper Series No. 2018-001, Available at SSRN: https://ssrn.com/abstract=3214528 or http://dx.doi.org/10.2139/ssrn.3214528

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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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