Banking competition and regional carbon emissions: Intensifying or suppressing? – Estimation based on a bilateral random frontier model

Existing literatures predominantly emphasize the unidirectional impact of banking competition on regional carbon emissions, often overlooking its concurrent emissions-increasing and emissions-reducing effects. Utilizing panel data from Chinese cities at the prefectural level and above from 2011 to 2020, this study delves into both the emissions-enhancing and emissions-mitigating impacts of banking competition, assessing their net effect through a bilateral random frontier model. As indicated by the results: (1) the emissions-increasing effect of banking competition reaches 0.2614, the emissions-reducing effect is 0.1580, and the net effect refers to an increase of 0.1034 in carbon emissions. The result of the mechanism analysis suggests that banking competition is capable of reducing carbon emissions by facilitating technological progress and upgrading industrial structures, whereas it can result in exacerbated carbon emissions by increasing the number of fixed asset investments and the scale of resident consumption. (2) By incorporating the threshold model into the bilateral random frontier model, the results reveal that with the increase of the degree of banking competition, the marginal effect of banking competition's emissions-reducing effect on regional carbon emissions increases, whereas the marginal effect of its emissions-increasing effect declines. (3) As indicated by the results of the spatial econometric analysis, while banking competition increases local carbon emissions, it also increases carbon emissions in adjacent areas. This study can lay a solid foundation for improving the theory and empirical evidence of banking competition and regional carbon emissions while providing experience and evidence for China and other developing countries to achieve carbon emissions reduction.