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The Effect of Financial Development on Energy Intensity in China

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  • Carlos Aller
  • Maria Jesus Herrerias
  • Javier Ordóñez

Abstract

In this study, we analyse the relationship between financial development and energy intensity in 28 Chinese provinces over the period 1999 to 2014. Using a wide variety of financial development measures, as well as specific indicators capturing the level of state intervention in the financial system and the degree of market-driven financing in the economy, we examine whether limited access to finance acts as a barrier to reducing energy intensity. Our estimations control for variables such as state investment, stock market capitalization and the composition effect. Further, a GMM estimator is used to control for endogeneity in our models. Our results provide evidence that a poorly functioning financial system constrains the reduction of energy intensity across regions. However, the strength of these effects has been gradually declining over time, especially following the implementation of the Green Credit Policy. Limitations in domestic access to finance as well as the misallocation of funds and the efficient use of capital have policy implications, as they can reduce the incentives for investment in the energy sector. These findings are a source of considerable interest in light of the new policy based on green credit, and they highlight new opportunities as well as challenges to sustainable economic growth.

Suggested Citation

  • Carlos Aller & Maria Jesus Herrerias & Javier Ordóñez, 2018. "The Effect of Financial Development on Energy Intensity in China," The Energy Journal, , vol. 39(1_suppl), pages 25-38, June.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:1_suppl:p:25-38
    DOI: 10.5547/01956574.39.SI1.call
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    References listed on IDEAS

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