Influences and transmission mechanisms of financial agglomeration on environmental pollution

The mechanism between financial agglomeration and environmental pollution is an important concern for both academia and policymaking. The main objective of this paper is to study the nonlinear impacts of financial agglomeration on environmental pollution. A theoretical framework was first constructed based on the scale effect, structure effect, and technology innovation effect of financial agglomeration and a Copeland-Taylor endogenous growth model. Using the panel data of 281 Chinese prefectural-level cities from 2003 to 2019, a panel threshold regression model was introduced to estimate the nonlinear association between financial agglomeration and environmental pollution. Industrial smoke (dust) emissions and industrial wastewater discharge were adopted to quantify current environmental pollution in China. The results show that financial agglomeration had a significant effect on improving the environment characterized by gradient thresholds; also notable is that 68.64% of the cities crossed the threshold value, entering the decelerating phase of financial agglomeration inhibiting environmental pollution. Both upgrading industrial structure and enhancing marketization could reduce environmental pollution, whereas increasing human capital, environmental regulation, and energy consumption had a deteriorating effect. The three channels for financial agglomeration to reduce environmental pollution were revealed to be financial scale, financial structure, and financial technology innovation. Our findings provide strong evidence for policymaking in sustainable development.