Bank competition, government interest in green initiatives and carbon emissions reduction: An empirical analysis using city-level data from China

• Published in: The North American journal of economics and finance Vol. 72; p. 102144
• Main Authors: Chen, Xu, Xu, Huilin, Anwar, Sajid
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.05.2024
• Subjects: Bank competition; Carbon emissions; Government policies; Green innovation; Manufacturing servitization; Government policies; Bank competition; Manufacturing servitization; G21; G28; Q50; Carbon emissions; Green innovation
• ISSN: 1062-9408; 1879-0860
• DOI: 10.1016/j.najef.2024.102144

•Increased bank competition significantly reduces carbon emissions.•The reduction is mainly driven by promoting green innovation and manufacturing servitization.•The effect is more pronounced in non-resource-dependent and non-regional financial center cities.•Government interest in green initiatives enhances the carbon reduction effect of bank competition. Finance plays a pivotal role in the transition to a sustainable economic development model. In China, the banking sector, a key component of its financial landscape, operates within an increasingly competitive environment, exerting profound effects on the efficient allocation of resources. This paper employs instrumental variables regression and text analysis techniques to meticulously examine the impact of bank competition on carbon emissions and elucidate the underlying mechanisms. We also investigate the synergistic influence of government engagement in green initiatives and bank competition on carbon emissions reduction, drawing insights from data encompassing Chinese cities during the years 2006 to 2019. Our empirical analysis unveils a significant carbon emissions reduction effect resulting from bank competition. This effect is primarily driven by the facilitation of green innovation and the promotion of manufacturing servitization. Notably, this impact is more pronounced in cities that are not dependent on resource extraction and those situated outside regional financial centers. Additionally, the level of government interest in green initiatives amplifies the carbon reduction effect of bank competition. This paper contributes to the enhancement of the banking market structure, aligning it with eco-friendly development goals.