Chinese Financial Development and Carbon Emissions Relationship Study

ABSTRACT At present, the global environment is not optimistic, and China is also facing severe challenges in carbon emissions (CE), but China actively formulates relevant policies and takes relevant measures and is gradually promoting the reduction of CE and the realization of green and low‐carbon transformation. This study uses the Panel Smooth Transition Regression (PSTR) model, an advanced econometric analysis tool, to further explore the complex and dynamic interaction mechanism between China's financial growth and CE. Based on the research results, the following conclusions can be drawn: first, there is a nonlinear relationship between financial growth and CE, which shows that with the continuous advancement of financial development (FLD), its impact on the environment is not the same. Second, in terms of scale and structural effects, fiscal growth exacerbates CE, but by means of technological innovation, fiscal growth helps to reduce CE. Among the factors affecting CE, the impact of FLD is noteworthy, showing that the potential of fiscal development to reduce CE through technological progress has not been fully realized. Third, when evaluating financial growth, we used four evaluation indicators, and finally got different results. As can be seen from the indicators of financial value appreciation and scale, financial growth has an impact on CE, and the nature and magnitude of the impact are in a stable transition stage. However, the indicators closely related to financial efficiency and Foreign Direct investment (FDI) have a positive impact on the reduction of CE. In these cases, fiscal growth leads to an increase in CE, and the degree of this impact transitions smoothly over time.