Financial Development and Industrial Pollution

Ralph de Haas, A. Popov

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherEuropean Banking Center
Number of pages50
Volume2018-001
Publication statusPublished - 16 Jul 2018

Publication series

NameEuropean Banking Center
Volume2018-001

Keywords

  • financial development
  • industrial pollution
  • innovation
  • reallocation

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