Nonlinearity, Heterogeneity and Indirect Effects in the CO2 Emissions-Financial Development Relation From Partial Linear Additive Panel Model

Assessing the effect of financial development on carbon pollution has recently attracted growing interest due to the important role of finance in the overall economic and energy system.However, numerous studies explored the direct impact of financial performance from an aggregate perspective, which ignores the potential nonlinear and indirect effects.By generating a new financial development index covering banks, insurance, and securities, this paper introduces a partial linear additive panel model with data-driven features to simultaneously explore the direct and indirect impacts of China's financial development on CO 2 emissions from nonlinear perspectives.Moreover, instead of the traditional linear marginal analysis, we perform a nonlinear marginal analysis and implement a spatial analysis to address the above objectives.The results manifest that the direct impact of financial development on CO 2 discharges is a nonlinear "U-shaped"; In contrast, the moderation effect through economic growth suggests that financial development contributes to reducing CO 2 concentrations.Marginal analysis shows that the effect of financial development on CO 2 emissions not only exhibits individual differences but also reflects the characteristics of temporal transition.The results of spatial analysis verify that the development of finance has prominent spatial effects on CO 2 discharges.The findings have important policy implications on how to effectively promote financial development to formulate more flexible investment policies and differentiated energy strategies.