Does bank credit to the private sector promote low-carbon development in Brazil? An extended STIRPAT analysis using dynamic ARDL simulations.

In support of the global efforts to tackle climate change, policy makers in the past decades have been actively involved, exploring possible options for ensuring low-carbon pattern of development. This study contributes to this important stream of policy discussion by using a newly developed econometric technique, dynamic ARDL simulations, to estimate and simulate the impact of bank credit to the private sector on aggregate carbon emissions and carbon emission intensity in Brazil over the period 1971-2014. The examined empirical model is based on a framework that incorporates the impact of population, economic growth, fossil energy intensity of consumption, and economic globalization. The analysis produced interesting results. First, the estimates show that economic growth and fossil energy intensity of consumption have significant long-run increasing impact on CO2 emissions in Brazil. Second, bank credit to the private sector has significant short-run and long-run reducing effects on aggregate CO2 emission and carbon emission intensity in the economy. Overall, the results reflect the tendency of the economy to become less carbon-intensive as bank credit supply to the private sector increases.