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Finance and Green Growth

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  • De Haas, Ralph
  • Popov, Alexander

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. The main channel underpinning this stylised fact is that stock markets facilitate green innovation in carbon-intensive sectors, resulting in lower carbon emissions per unit of output. More tentative evidence indicates that stock markets also help to reallocate investment towards more energy-efficient sectors. Cross-border spill-overs are limited: less than five percent 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.

Suggested Citation

  • De Haas, Ralph & Popov, Alexander, 2019. "Finance and Green Growth," CEPR Discussion Papers 14012, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14012
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    More about this item

    Keywords

    Financial development; Financial structure; Carbon emissions; Innovation;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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