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Finance and Green Growth

Author

Listed:
  • Ralph De Haas
  • Alexander Popov
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 spillovers are limited: less than 5% 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

  • Ralph De Haas & Alexander Popov, 2023. "Finance and Green Growth," The Economic Journal, Royal Economic Society, vol. 133(650), pages 637-668.
    • Handle: RePEc:oup:econjl:v:133:y:2023:i:650:p:637-668.
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    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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