Impact of financial development on trade-embodied carbon dioxide emissions: Evidence from 30 provinces in China

Abstract The literature on financial development and carbon dioxide (CO 2 ) emissions is extensive. However, previous studies have not found the impact of financial development on trade-embodied CO 2 emissions. Therefore, we build a dynamic panel model based on the extension of the STIRPAT model to verify the overall and indirect impact of financial development. We calculate trade-embodied CO 2 emissions of 30 provinces in China in 2000–2014 using the single region input-output model (SRIO) by eliminating the impact of imported intermediate products on CO 2 emissions embodied in exports ( EXC ). In order to measure financial development in China more comprehensively, we use financial scale development, financial efficiency and financialization to define it. Results show that the environmental Kuznets curve is confirmed at the level of China's provinces. In most provinces, EXC began to increase in 2006 and decline in 2010, but CO 2 embodied in net exports ( EC ) began to decrease in 2005 and increase in 2010. The results of overall impact indicate that different financial development indicators have different effects on EC . But they all reduce EXC . The results of indirect impact through imitation innovation ( IC ) and independent research and development ( RD ) find that financial scale development increases EXC , however, financial efficiency and financialization decreases EXC . Financial scale development and financial efficiency can decrease EC , but financialization increases EC . The results of indirect impact through FDI show that financial scale development and financial efficiency can decrease EXC and EC. Financialization decreases EXC , but the impact of financialization on EC has obvious threshold characteristics. When the level of financialization is lower than the threshold value, financialization will reduce EC . There is regional heterogeneity in the impact of financial development on trade-embodied CO 2 emissions. The conclusions of this paper are of great reference value for improving the level of financial development so as to realize the development of China's green trade.