Drivers of CO ₂ Reduction in OECD : Financial Structure and

ABSTRACT

The study analyzes the response of disaggregated level foreign direct investment (FDI) and financial structure on the CO ₂ intensity of 30 high energy‐consuming OECD countries. To this end, the study applies the Method of Moment Quantile Regression (MMQR) to the data between 2013 and 2021, and the results revealed that aggregated FDI enhances CO ₂ intensity, while the results vary at disaggregated levels. For example, FDI in the agriculture, forestry, and fishing sector increases CO ₂ intensity, FDI in the services sector has an insignificant impact on CO ₂ intensity, whereas construction, mining and quarrying, electricity and gas, finance and insurance, and manufacturing sectors curb CO ₂ intensity. The coefficients between financial structure and CO ₂ intensity are also positive and significant at different quantiles of the model, suggesting that a high percentage of financial expansion is associated with excessive carbon intensity. The results are re‐verified by changing quantiles, using another proxy for CO ₂ , and applying a heterogeneous estimator (IVGMM).