Financial development, carbon dioxide emissions, and sustainable development

Abstract China currently is the world's largest energy consumer and carbon dioxide emitter. How to effectively control carbon dioxide emissions and promote sustainable development is indispensable for achieving the “double carbon” goal, promoting comprehensive economic transformation and upgrading, and contributing to high‐quality economic development. There is no doubt that a large amount of financial resources need to be invested in the process of encouraging sustainable development. Therefore, what is the relationship among financial development, carbon dioxide emissions and sustainable development? Can financial development facilitate sustainable development? In order to answer these two key questions, this article uses entropy weight method, fixed effect model, and panel vector autoregressive (PVAR) model to deeply explore the static and dynamic relationship among financial development, carbon dioxide emissions and sustainable development with the panel data of 30 provinces in China from 2005 to 2021. The research results show that financial development is conducive to forwarding sustainable development, and the negative impact of carbon dioxide emissions on sustainable development is also significant at present. That means financial development and carbon dioxide emissions have important impact on sustainable development. The further empirical results of PVAR model show that there are significant differences in the impact of financial development and carbon dioxide emissions on sustainable development in different periods of time. Therefore, the government should take timely measures according to the different roles played by financial development and carbon dioxide emissions at different stages to promote sustainable development.