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Financial development and the environmental performance of manufacturing firms: Evidence from India

Year: 2026

Type: article

Abstract: This study examines how financial development affects the environmental performance of manufacturing firms. Exploiting state-level variation in the credit-to-GDP ratio and detailed energy consumption data from Indian manufacturing firms during the 1990s and 2000s, I find that financial development significantly reduces firm energy intensity. To explore the potential channels, I combine highly disaggregated product-level production and energy consumption data. The results show that financial development lowers energy intensity through technological upgrading, the use of less carbon-intensive energy, and a reallocation of production toward cleaner products. The findings highlight the important role of financial sector development in improving the environmental performance of manufacturing firms and promoting sustainable industrial development.

Source: International Review of Economics & Finance

DOI: 10.1016/j.iref.2026.105864

Author: Xiuxiu Lin

Institution: University of Auckland

Language: English

Topic: Energy, Environment, Economic Growth

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Industry, innovation and infrastructure, Responsible consumption and production, Decent work and economic growth, Climate action

Open Access status: gold

Estimated APC paid: $1,930