How does financial development reduce carbon emissions: evidence from BRI countries

Low-carbon development in BRI countries is crucial to the global response to climate change. As an important factor in promoting economic growth, financial development has a great impact on BRI countries’ carbon emissions. This paper applies the panel data of 43 BRI countries for the period 1997–2019 to investigate the influence of financial development on carbon emissions. The two-tier stochastic Frontier model is employed to decompose the restraining and rebounding effects of financial development. The results show that financial development has both restraining and rebounding effects on carbon emissions, and the rebounding effect is less than the restraining effect, resulting in a positive net effect. The average restraining effect is 0.165, and the average rebounding effect is 0.018, causing the net effect of financial development on carbon emissions to have an average value of 0.147. The restraining effect decreases year by year, implying there is a blocking point to release the restraining effect. Moreover, technological progress strengthens the restraining effect, while the increase in energy consumption weakens the restraining effect. The findings indicate that excavating the restraining effect of financial development, promoting technological progress, and reducing fossil energy consumption is crucial to promoting the low-carbon development of BRI countries.