*5.1. Di*ff*erent Estimation Methods*

We chose the system GMM to estimate the models because it could effectively cope with the endogenous problems of a dynamic panel. In this section, we adopted a static panel and the traditional estimation strategies, which include the pooled OLS, fixed effect (FE), and random effect (RE) to examine the influence of financial development on carbon emissions and the robustness of our empirical results.

Table 12 presents the estimation results of the static panel model. All the coefficients of FD1 were significant at the 1% level, which was consistent with the previous results. The Hausman test indicated that the fixed effect was better than the random effect model; however, we reported both of the results, which were quite similar. These empirical results proved that our conclusions were consistent under different model specifications, and further indicated that our model might not seriously suffer from the issue of endogeneity, as we could notice the value of coefficients estimated by the fixed effect, random effect and GMM were quite similar. As we know, the issue of endogeneity is generally caused by the existence of reverse causality, however the above analysis indicated that the reverse causality might not exist in the relationship of financial development and carbon emissions. This is consistent with most works of scholars, as very little research has reported the appearance of reverse causality on it.


**Table 12.** Results of the static panel regressions.


**Table 12.** *Cont.*

Note: \*\*\*, \*\*, and \* indicate significance at 1%, 5%, and 10% levels, respectively.

#### *5.2. Longer Sample Periods*

When we adopted the panel data analysis, we often had to balance the number and the period of the sample data, as they generally appeared to have a negative correlation. In our main regression, we chose the panel data of 155 countries from 1990 to 2014, as we thought that this would be the best sample size for our analysis according to the data characteristics. We attempted to analyze the relationship between financial development and carbon emissions from the perspective of a longer time dimension by extending the sample period. This lost more sample countries but allowed us to examine whether the above conclusions were valid in the long-term.

Specifically, according to the data availability, we extended the sample period of our main model to 1980–2014. As the FD2 index had relatively complete data compared with other indexes in the earlier years, we used FD2 as the proxy of financial development and extended the initial sample period from 1990 to 1980, 1970, and, 1960, separately.

Table 13 shows that the coefficients of FD1 and FD2 were all positive and strongly significant, which implied that the previous results were valid in the long-term. We estimated the first three regressions with the same system GMM; however, we estimated the last regression (FD2, 1960–2014) using the least squares dummy variable corrected (LSDVC) method, as the sample data of this regression were long panel data (the number of years was larger than the number of countries); therefore, the estimated values would have appeared to have a serious bias if we used GMM. LSDVC performs much better than GMM under this circumstance [56,57].


**Table 13.** Results of the full sample regressions with longer periods.


**Table 13.** *Cont.*

Note: \*\*\*, \*\*, and \* indicate significance at 1%, 5%, and 10% levels, respectively.

#### **6. Discussion**

As most of research on the relationship between financial development and carbon emissions focuses on specific countries or regions, our study analyzed their relationship from the global perspective with worldwide cross-country panel data, and investigated the national difference by dividing the country samples into two sub-groups, besides, we further examined the effect of different aspects of financial development on carbon emissions with a series proxy variables, under a unified framework. Therefore, compared with the previous research, our study could provide a macroscopic intuition and more empirical evidence on this topic. Although our conclusions were consistent with some research [22,23,28], they were quite different from other works [16,17,27]. As mentioned above, the controversial conclusions reflect the complexity of the relationship between financial development and carbon emissions, which may vary across countries or regions, therefore it is unreasonable to hold a constant opinion, and additional in-depth research is needed on this topic.

The main limitation of our research was, we investigated the national difference of the effect of financial development on carbon emissions by dividing the country samples into two sub-groups, however, due to the inadequate data and the lack of relevant research, we could not conduct more accurate analysis on it. Specifically, the controversial results obtained by research on this topic (including our study) actually reflected the nonlinear characteristics of the relationship between financial development and carbon emissions to some extent. In other words, there might exist one or more factors which could significantly affect the relationship between financial development and carbon emissions. These factors could be concrete ones such as institution and policy, or a general concept such as income level or development level of a country. This might be an interesting and worthwhile research direction that scholars have rarely focused on.

#### **7. Conclusions and Policy Implications**

In this study, we empirically researched the relationship between financial development and carbon emissions based on the data of 155 countries, and analyzed the national differences by dividing the sample countries into two sub-groups: developed countries, and emerging market and developing countries. Besides, we further investigated the effect of different aspects of financial development on carbon emissions by adopting a series of proxy variables. According to the empirical results, we concluded that the financial development can increase carbon emissions from a global perspective, and this conclusion remains valid for the sub-group of emerging market and developing countries. However, the empirical results indicated that financial development has no obvious influence on carbon emissions for developed countries. Besides, compared with the development of stock market, the development of financial institution has a relatively stronger effect on carbon emissions. The robustness checks proved that the above empirical results are reliable.

The empirical analysis suggests the following policy implications:

(1) Over the past few decades, the growing carbon emissions have become a global environmental issue which received widespread attention. According to the data of World Bank, the world's metric tons per capita carbon emissions is 4.19 in 1990, but dramatically increased to 4.97 in 2014. Although some research considers that the financial development could reduce carbon emissions and find empirical evidence in several countries or regions [9,15,16], our analysis indicated that the financial development has a positive effect on carbon emissions from the global perspective, which means the development of the financial sector cannot be intuitively deemed as a measure to address environmental degradation, and policymakers should carefully analyze the environmental effects of financial development and balance this relationship based on specific circumstances of a country.

(2) The empirical results of the sub-groups indicated that in emerging market and developing countries, the financial development has a positive effect on carbon emissions while it has no obvious influence in developed countries. These are consistent with the conclusions of some research [14,23,28]. This implies that with the increase in the development level of a country, the "positive effect" of financial development on carbon emissions will be gradually offset by the "negative effect".

Generally, the developed countries have well-developed industrial systems that enterprises tend to invest in technological innovation but not scale expansion, and the financial sectors prefer to fund for environmental protection projects due to the strict environmental regulations of government. These could largely neutralize the "positive effect" of financial development. Consequently, policymakers in developed countries are not facing environmental pressure while planning the development of the financial sector, which will enable them to concentrate on the function of resource allocation and growth effect of financial development.

Nevertheless, due to the undeveloped industrial sectors and the pressure of economic development in emerging and developing countries, the enterprises tend to expand production scale though credit rather than developing energy saving technology, hence the "positive effect" of financial development dominates and the development of financial sector has a significant effect on carbon emissions. This reflects the unavoidable contradiction of economic development and environmental protection. Notwithstanding, we suggest the policymakers in emerging and developing countries to carefully balance their relationship and attach importance to emission reduction, as the extensive growth will conversely impede the long-run economic development, meanwhile, it will dramatically increase the cost of environmental pollution control in the future. Specifically, it might be reasonable for governments to lead more financial resources for industrial upgrading, which could improve production and energy efficiency and finally promote economic growth from the channel of total factor productivity (TFP) [58], along with the reduction of carbon emissions.

In addition, the empirical results of the sub-groups also implied that the influence of financial development on carbon emissions might agree with the law of short-term pain, long-term gain, from the macro perspective. Therefore, policymakers in emerging market and developing countries could comprehensively regard the positive effect of financial development, and formulate a long-term strategy for the domestic development of the financial sector.

(3) The empirical results of regressions with different proxy variables of financial development reflected that the development of stock market has obviously smaller influence on carbon emissions than the development of financial institution. This may be caused by the strict supervision of listed companies which enforce them to assume social responsibility of environmental protection and utilize more advanced technologies which could increase the energy efficiency and reduce carbon emissions. Therefore, the authorities might consider giving a priority for the development of the stock market, as it performs better to limit the increase of carbon emissions, compared with the development of financial institution.

**Author Contributions:** Conceptualization, C.J. and X.M.; data curation, X.M.; formal analysis, C.J. and X.M.; funding acquisition, C.J.; investigation, X.M.; methodology, C.J. and X.M.; project administration, C.J.; resources, X.M.; software, X.M.; supervision, C.J. and X.M.; validation, X.M.; visualization, X.M.; writing—original draft, X.M.; writing—review and editing, C.J. and X.M.

**Funding:** This research was funded by the Chinese National Funding of Social Sciences, Grant Number 15ZDC020. The APC was funded by the Chinese National Funding of Social Sciences.

**Conflicts of Interest:** The authors declare no conflict of interest.
