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Credit Allocation, Pollution, and Sustainable Growth: Theory and Evidence from China

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  • Qingma Dong
  • Shuyang Wen
  • Xiliang Liu

Abstract

This article studies how credit decisions made by banks affect environmental pollution and the sustainable growth path. Our model suggests that with credit discrimination, the economy may experience a high output and heavy pollution steady state, but there will be welfare losses. Based on the model, we perform an empirical study using panel data from 30 provinces in China. The study results show that credit preference toward highly polluting sectors has an adverse impact on the environment. Arguably, encouraging sustainable banking may help developing countries like China to address environmental challenges.

Suggested Citation

  • Qingma Dong & Shuyang Wen & Xiliang Liu, 2020. "Credit Allocation, Pollution, and Sustainable Growth: Theory and Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(12), pages 2793-2811, September.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:12:p:2793-2811
    DOI: 10.1080/1540496X.2018.1528869
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    Cited by:

    1. Jia Li & Decai Tang & Acheampong Paul Tenkorang & Zhuoran Shi, 2021. "Research on Environmental Regulation and Green Total Factor Productivity in Yangtze River Delta: From the Perspective of Financial Development," IJERPH, MDPI, vol. 18(23), pages 1-24, November.
    2. Qiming Yang & Jun He & Ting Liu & Zhitao Zhu, 2021. "Environmental Effects of Credit Allocation Structure and Environmental Expenditures: Evidence from China," Sustainability, MDPI, vol. 13(11), pages 1-16, May.
    3. Veronika Jezkova & Zuzana Rowland & Veronika Machova & Jan Hejda, 2020. "The Intrinsic Value of an Enterprise Determined by Means of the FCFE Tool," Sustainability, MDPI, vol. 12(21), pages 1-13, October.
    4. Li, Cong & Liu, Jiaxuan & Zhou, Yunxu & Yang, Benshuo & Sun, Jiawen, 2024. "Can green credit policy alleviate inefficient investment of heavily polluting enterprises? A quasi-natural experiment based on the Green Credit Guidelines," Finance Research Letters, Elsevier, vol. 59(C).
    5. Riquan Yao & Yingqun Fei & Zhong Wang & Xin Yao & Sasa Yang, 2023. "The Impact of China’s ETS on Corporate Green Governance Based on the Perspective of Corporate ESG Performance," IJERPH, MDPI, vol. 20(3), pages 1-16, January.
    6. Jingcheng Li & Menggang Li & Tianyang Wang & Xiuqin Feng, 2023. "Analysis of the Low-Carbon Transition Effect and Development Pattern of Green Credit for Prefecture-Level Cities in the Yellow River Basin," IJERPH, MDPI, vol. 20(5), pages 1-22, March.
    7. Song, Malin & Zheng, Huanyu & Shen, Zhiyang & Chen, Boyang, 2023. "How financial technology affects energy transformation in China," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    8. Zhitao, Wang & Xiang, Ma, 2023. "Financial mismatch on corporate debt default risk: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    9. Lei, Ni & Miao, Qin & Yao, Xin, 2023. "Does the implementation of green credit policy improve the ESG performance of enterprises? Evidence from a quasi-natural experiment in China," Economic Modelling, Elsevier, vol. 127(C).
    10. Hu, Guoqiang & Wang, Xiaoqi & Wang, Yu, 2021. "Can the green credit policy stimulate green innovation in heavily polluting enterprises? Evidence from a quasi-natural experiment in China," Energy Economics, Elsevier, vol. 98(C).
    11. Wang, Weilong & Wang, Jianlong & Wu, Haitao, 2024. "The impact of energy-consuming rights trading on green total factor productivity in the context of digital economy: Evidence from listed firms in China," Energy Economics, Elsevier, vol. 131(C).
    12. Bingwen Wang & Chen Wang, 2023. "Green Finance and Technological Innovation in Heavily Polluting Enterprises: Evidence from China," IJERPH, MDPI, vol. 20(4), pages 1-16, February.
    13. Li, Wei & Cheng, Huihui & He, Junhe & Song, Yufei & Bu, Hui, 2024. "The impacts of green credit policy on green innovation of high-polluting enterprises in China," Finance Research Letters, Elsevier, vol. 62(PA).
    14. Su, Chi-Wei & Li, Wenhao & Umar, Muhammad & Lobonţ, Oana-Ramona, 2022. "Can green credit reduce the emissions of pollutants?," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 205-219.
    15. Shi, Jinyan & Yu, Conghui & Li, Yanxi & Wang, Tianhe, 2022. "Does green financial policy affect debt-financing cost of heavy-polluting enterprises? An empirical evidence based on Chinese pilot zones for green finance reform and innovations," Technological Forecasting and Social Change, Elsevier, vol. 179(C).
    16. Huacheng Rao & Dongxu Chen & Feichao Shen & Yangyang Shen, 2022. "Can Green Bonds Stimulate Green Innovation in Enterprises? Evidence from China," Sustainability, MDPI, vol. 14(23), pages 1-19, November.
    17. Li, Yanxi & Yu, Conghui & Shi, Jinyan & Liu, Yuanyuan, 2023. "How does green bond issuance affect total factor productivity? Evidence from Chinese listed enterprises," Energy Economics, Elsevier, vol. 123(C).
    18. Xingshuai Wang & Ehsan Elahi & Zainab Khalid, 2022. "Do Green Finance Policies Foster Environmental, Social, and Governance Performance of Corporate?," IJERPH, MDPI, vol. 19(22), pages 1-15, November.

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