Financial development, environmental regulation, and pollution emission: evidence from China
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This study investigates the relationship between financial development and pollution emissions in Chinese cities between 1998 and 2007. Using a unique data from the Ministry of Environmental Protection, our analysis reveals that banking deregulation and increased loan inflows contribute to a reduction in toxic discharges. Rather than investing in pollution control technologies, firms leverage improved access to finance to enhance production efficiency and reduce energy consumption, which indirectly curbs emissions. These findings suggest that financial development promotes environmental benefits through technological advancement and asset reallocation, challenging the scale effect hypothesis. JEL Codes: G2, G32, L25, L6, Q53
