Financial Development and Industrial Pollution

CentER Discussion Paper Series No. 2018-024

European Banking Center Discussion Paper Series No. 2018-001

50 Pages Posted: 4 Aug 2018

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 2 versions of this paper

Date Written: July 16, 2018

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.

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 16, 2018). CentER Discussion Paper Series No. 2018-024. 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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