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Are household borrowing constraints bad for the environment? Theory and cross-country evidence

In: A Research Agenda for Environmental Economics

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  • Dana C. Andersen

Abstract

Credit constraints bear on investment and production decisions, affecting the composition of output in the “clean†and “dirty†industries and the pollution intensity of production. In particular, credit constraints impinge on investment in human capital, which is extensively used in clean industries. As a consequence, industries employing human capital less intensively and pollution more intensively are promoted. I propose a simple two-sector model, where producer-consumers face credit constraints when young and, therefore, invest less in human capital. As a result, production is oriented towards more pollution-intensive industries and therefore entails more pollution. This prediction is supported for production-generated air pollutants SO2 and lead using reduced-form regressions.

Suggested Citation

  • Dana C. Andersen, 2020. "Are household borrowing constraints bad for the environment? Theory and cross-country evidence," Chapters, in: Matthias Ruth (ed.), A Research Agenda for Environmental Economics, chapter 11, pages 184-214, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:18903_11
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    Keywords

    Economics and Finance; Environment;

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