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Revisit causal nexus between financial development and environmental quality in China: a structural shift panel data
Yiguo Chen1,2, Peng Luo3, Teng Tong4
1Research Institute for Dual Circulation Development of the Greater Bay Area, Guangdong University of Finance & Economics, Guangzhou, China.
Financial development can improve environmental quality by reducing PM2.5 concentrations, especially after accounting for structural shifts. This finding offers insights for China
Area of Science:
- Environmental Economics
- Financial Development Studies
- Climate Change Policy
Background:
- Climate change presents a global challenge requiring interdisciplinary solutions.
- The relationship between financial development and environmental responsibility remains a critical area of research.
- China's rapid economic growth necessitates an examination of its environmental impact.
Purpose of the Study:
- To investigate the nexus between financial development and environmental quality in China.
- To determine if financial development contributes to improved environmental quality, specifically PM2.5 reduction.
- To explore the impact of structural shifts on this relationship over time.
Main Methods:
- Utilized the Toda-Yamamoto and extended Fourier Toda-Yamamoto causality tests.
- Analyzed data from 31 Chinese provinces and municipalities spanning 2000-2018.
- Conducted robustness tests to validate findings.
Main Results:
- Financial development was found to reduce PM2.5 concentrations in specific regions of China.
- A significant positive effect of financial development on environmental quality was observed, with regional variations.
- The relationship became more significant in additional regions after accounting for structural shifts, indicating economic transitions.
Conclusions:
- Financial development can be a tool for enhancing environmental quality and reducing pollution in China.
- China's structural shifts have influenced the finance-environment relationship.
- Findings support leveraging financial mechanisms to support carbon emission reduction and global climate change mitigation efforts.
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