DP14012 Finance and Green Growth
Author(s): | Ralph de Haas, Alexander Popov |
Publication Date: | September 2019 |
Date Revised: | January 2021 |
Keyword(s): | Carbon Emissions, Financial Development, Financial structure, Innovation |
JEL(s): | G10, O4, Q5 |
Programme Areas: | Financial Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=14012 |
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.