The Impact of Climate Change on Financial Stability
Abstract
:1. Introduction
2. Literature Review and Hypotheses
2.1. Literature Review
2.1.1. Financial Risk from Climate Change
2.1.2. Research on Climate Policy Modeling
2.2. Hypotheses
3. Methodology
3.1. Two-Way Fixed-Effect Model
3.2. Mechanism Analysis
4. Sample Selection and Data Sources
4.1. Sample Selection
4.2. Data Sources
4.2.1. Dependent Variable
4.2.2. Independent Variable and Mediating Variables
4.2.3. Control Variables
- (1)
- Loan-to-deposit ratio (LDR): It is measured by the ratio of loan balance to deposit balance at the end of each year. From the point of view of profitability, the higher the value, the better. On the contrary, the lower the value, the better from the perspective of risk protection.
- (2)
- Consumer price index (CPI): It reflects the price changes of commodities within a certain time, where the commodities mainly refer to the necessities related to the life of residents. It is a hot economic indicator of the financial market, reflecting the impact of consumer consumption on the financial market.
- (3)
- Price index of investment in fixed assets (Piifa): A relative number that reflects the trend and magnitude of change in the price of fixed assets within a certain time. A large negative fluctuation in fixed asset investment will have a large negative impact on regional financial stability.
- (4)
- Commercial turnover (ComT): It reflects the total amount of commodity market turnover in a certain time. A decline in commodity trading indicates that the market is under liquidity pressure, and financial markets may be vulnerable at this time.
- (5)
- Tax revenue (TaxR): It is a part of the fiscal revenue. The higher the tax revenue, the smoother the operation of the financial market.
5. Empirical Results
5.1. Descriptive Statistics
5.2. Baseline Regression Results
6. Robustness Test
6.1. Endogeneity Test
6.2. Alternative Key Variables
6.3. Delete Special Years
7. Mechanism Analysis
7.1. Heterogeneity Analysis
7.1.1. Classify Samples by Region
7.1.2. Sample Classification According to Coastal, Yangtze River Delta, and Pearl River Delta
7.1.3. Sample by Climate Risk Level
7.2. Mechanism Analysis
8. Conclusions and Recommendations
8.1. Conclusions
- (1)
- We first examined the relationship between climate change and FSCI through a two-way fixed-effect model. The results introduce the idea that climate change significantly negatively affects the level of financial stability. This means that the hypothesis is valid. The greater the temperature deviation, the lower the level of financial stability.
- (2)
- In order to further prove the rationality of the model, we examined the robustness of the benchmark model using an endogeneity test, replacing the major variables and deleting special years. The effects of climate change on FSCI are still significant, which confirms the robustness of our previous discussion.
- (3)
- Climate conditions are inconsistent between provinces. A heterogeneity analysis examined the climate change situation and its impact on FSCI in the different provinces of China. The samples were classified according to province type, coastal characteristics, and climate risk area. The impact of temperature change on FSCI is greater in the central provinces, non-coastal regions, non-Yangtze River Delta and Pearl River Delta regions, and risk zone I, but smaller in other regions.
- (4)
- Finally, the internal way that climate change affects FSCI was tested using a mediation model, and the regression was significant. The impact of climate change on FSCI is mediated by gross regional product (GRP) and local fiscal revenue (LFR).
8.2. Recommendations
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Acknowledgments
Conflicts of Interest
References
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Variable Type | Variables | N | Minimum | Mean | Maximum | Std Dev. |
---|---|---|---|---|---|---|
Dependent Variable | FSCI | 480 | −3.7600 | −0.1563 | 4.2600 | 2.0317 |
Independent Variable | TempD | 480 | 0.2600 | 1.4121 | 2.6400 | 0.4377 |
LnLDR | 480 | −0.8015 | −0.2959 | 0.1520 | 0.1778 | |
Control Variables | LnCPI | 480 | 4.5814 | 4.6312 | 4.7013 | 0.0170 |
LnPiifa | 480 | 4.5643 | 4.6298 | 4.7300 | 0.0302 | |
LnComT | 480 | 2.4336 | 7.0470 | 9.9661 | 1.4921 | |
TaxR | 480 | 0.0338 | 1.5802 | 10.0639 | 1.6601 | |
Mediating Variables | GRP | 480 | 0.0543 | 1.9433 | 11.0761 | 1.8822 |
LFR | 480 | 0.0034 | 0.2034 | 1.2924 | 0.2039 |
Variables | (1) | (2) | (3) | (4) |
---|---|---|---|---|
Two-Way Fixed-Effects Model | Two-Way Fixed-Effects Model | Random-Effects Model | OLS | |
FSCI | FSCI | FSCI | FSCI | |
TempD | −0.386 *** | −0.309 *** | −0.629 *** | −0.629 *** |
(0.081) | (0.088) | (0.163) | (0.163) | |
LnLDR | −0.092 | 5.217 *** | 5.217 *** | |
(0.348) | (0.404) | (0.404) | ||
LnCPI | −8.282 ** | −28.148 *** | −28.148 *** | |
(4.116) | (5.855) | (5.855) | ||
LnPiifa | 1.152 | 8.876 *** | 8.876 *** | |
(2.408) | (3.253) | (3.253) | ||
LnComT | 0.212 ** | −0.064 | −0.064 | |
(0.085) | (0.065) | (0.065) | ||
TaxR | 0.095 ** | 0.638 *** | 0.638 *** | |
(0.038) | (0.058) | (0.058) | ||
Constants | −1.996 *** | 29.477 | 90.986 *** | 90.986 *** |
(0.142) | (21.519) | (19.856) | (19.856) | |
Year | YES | YES | — | No |
Province | YES | YES | — | No |
N | 480 | 480 | 480 | 480 |
Adjust-R2 | 0.949 | 0.950 | — | 0.431 |
Variables | (1) | (2) | (1) | (2) |
---|---|---|---|---|
Total Afforested Area (Taa) | Wetland Area/National Land Area (Wnla) | |||
First Stage | Second Stage | First Stage | Second Stage | |
TempD | −7.683 *** | −0.611 * | ||
(2.729) | (0.368) | |||
LnLDR | 0.204 * | 6.534 *** | 0.379 *** | 5.214 *** |
(0.112) | (1.038) | (0.106) | (0.393) | |
LnCPI | −2.420 | −42.590 *** | −1.450 | −28.111 *** |
(1.631) | (14.104) | (1.512) | (5.588) | |
LnPiifa | 1.396 | 17.548 ** | 0.781 | 8.854 *** |
(0.905) | (6.959) | (0.840) | (3.043) | |
LnComT | 0.049 *** | 0.258 | 0.016 | −0.065 |
(0.018) | (0.315) | (0.017) | (0.073) | |
TaxR | 0.005 | 0.715 *** | 0.029 * | 0.638 *** |
(0.016) | (0.136) | (0.015) | (0.064) | |
Total afforested area | −0.373 *** | |||
(0.117) | ||||
Wetland area/National land area | −0.108 *** | |||
(0.012) | ||||
Constants | 5.937 | 125.678 ** | 4.618 | 90.897 *** |
(5.532) | (50.897) | (5.127) | (18.193) | |
N | 480 | 480 | 480 | 480 |
F value | 10.204 | 87.6976 |
(1) | (2) | (3) | (4) | (5) | (6) | |
---|---|---|---|---|---|---|
FSCI | FSCI | FAG | FAG | FAG | FAG | |
L. TempD | −0.401 *** | −0.342 *** | 0.007 *** | 0.006 *** | ||
(0.084) | (0.092) | (0.002) | (0.002) | |||
TempD | 0.007 *** | 0.006 *** | ||||
(0.002) | (0.002) | |||||
LnLDR | −0.202 | 0.004 | 0.004 | |||
(0.362) | (0.007) | (0.007) | ||||
LnCPI | −7.572 * | −0.172 ** | −0.190 ** | |||
(4.394) | (0.080) | (0.085) | ||||
LnPiifa | 0.368 | 0.040 | 0.022 | |||
(2.489) | (0.047) | (0.048) | ||||
LnComT | 0.158 * | −0.004 ** | −0.005 *** | |||
(0.088) | (0.002) | (0.002) | ||||
TaxR | 0.082 * | 0.004 | −0.001 | |||
(0.042) | (0.007) | (0.008) | ||||
Constants | −1.957 *** | 30.126 | 0.022 *** | 0.661 | 0.022 *** | 0.832 * |
(0.145) | (22.753) | (0.003) | (0.420) | (0.003) | (0.441) | |
Year | YES | YES | YES | YES | YES | YES |
Province | YES | YES | YES | YES | YES | YES |
N | 450 | 450 | 480 | 480 | 450 | 450 |
Adjust-R2 | 0.948 | 0.949 | 0.793 | 0.795 | 0.780 | 0.784 |
(1) | (2) | (1) | (2) | |
---|---|---|---|---|
Removing Year 2008 | Removing Year 2020 | |||
FSCI | FSCI | FSCI | FSCI | |
TempD | −0.378 *** | −0.297 *** | −0.288 *** | −0.205 ** |
(0.081) | (0.089) | (0.084) | (0.090) | |
LnLDR | −0.000 | −0.264 | ||
(0.361) | (0.360) | |||
LnCPI | −7.777 * | −9.478 ** | ||
(4.614) | (4.129) | |||
LnPiifa | 0.947 | 1.822 | ||
(2.606) | (2.408) | |||
LnComT | 0.214 ** | 0.259 *** | ||
(0.085) | (0.091) | |||
TaxR | 0.010 *** | 0.009 ** | ||
(0.004) | (0.004) | |||
Constants | −2.007 *** | 28.094 | −2.135 *** | 31.419 |
(0.142) | (23.794) | (0.144) | (21.598) | |
Year | YES | YES | YES | YES |
Province | YES | YES | YES | YES |
N | 450 | 450 | 450 | 450 |
Adjust-R2 | 0.949 | 0.950 | 0.941 | 0.943 |
(1) | (2) | (3) | ||||
---|---|---|---|---|---|---|
Central Provinces | Eastern Provinces | Western Provinces | ||||
FSCI | FSCI | FSCI | ||||
TempD | −1.102 *** | −0.500 *** | −0.137 | −0.172 | −0.330 * | 0.271 |
(0.130) | (0.188) | (0.142) | (0.155) | (0.183) | (0.232) | |
LnLDR | 0.380 | −0.097 | 0.185 | |||
(0.644) | (0.561) | (0.773) | ||||
LnCPI | −9.965 | −13.367 * | −0.081 | |||
(11.143) | (6.853) | (6.843) | ||||
LnPiifa | −3.240 | 5.134 | 4.070 | |||
(3.921) | (3.936) | (4.651) | ||||
LnComT | 0.202 | −0.313 ** | −0.013 | |||
(0.254) | (0.140) | (0.149) | ||||
TaxR | 1.015 *** | 0.117 *** | 1.007 *** | |||
(0.253) | (0.045) | (0.218) | ||||
Constants | −1.134 *** | 57.790 | −2.362 *** | 37.820 | −2.119 *** | −21.427 |
(0.212) | (50.277) | (0.272) | (35.505) | (0.276) | (38.852) | |
Year | YES | YES | YES | YES | YES | YES |
Province | YES | YES | YES | YES | YES | YES |
N | 144 | 144 | 192 | 192 | 144 | 144 |
Adjust-R2 | 0.960 | 0.966 | 0.950 | 0.953 | 0.946 | 0.955 |
(1) | (2) | |||||||
---|---|---|---|---|---|---|---|---|
Coastal Provinces | Non-Coastal Provinces | Non-YRD and PRD | YRD and PRD | |||||
FSCI | FSCI | FSCI | FSCI | |||||
TempD | −0.158 | −0.188 | −0.783 *** | −0.586 *** | −0.395 *** | −0.324 *** | −0.027 | 0.612 |
(0.150) | (0.164) | (0.105) | (0.121) | (0.090) | (0.094) | (0.309) | (0.433) | |
LnLDR | 0.087 | 0.962 ** | 0.035 | 2.424 * | ||||
(0.703) | (0.452) | (0.415) | (1.217) | |||||
LnCPI | −14.634 * | −5.112 | −9.373 ** | −4.560 | ||||
(7.818) | (4.834) | (4.623) | (11.865) | |||||
LnPiifa | 5.357 | −0.716 | 2.427 | −1.678 | ||||
(4.178) | (2.778) | (2.799) | (6.505) | |||||
LnComT | −0.344 ** | 0.290 *** | 0.200 ** | −0.070 | ||||
(0.148) | (0.105) | (0.089) | (0.569) | |||||
TaxR | 0.121 ** | 0.433 *** | 0.216 ** | 0.125 | ||||
(0.048) | (0.107) | (0.084) | (0.075) | |||||
Constants | −2.313 *** | 42.975 | −1.556 *** | 23.749 | −1.966 *** | 28.822 | −2.743 *** | 26.172 |
(0.297) | (40.232) | (0.164) | (25.278) | (0.153) | (24.538) | (0.592) | (56.507) | |
N | 176 | 176 | 304 | 304 | 400 | 400 | 80 | 80 |
Adjust-R2 | 0.945 | 0.949 | 0.955 | 0.959 | 0.944 | 0.946 | 0.966 | 0.968 |
(1) | (2) | (3) | ||||
---|---|---|---|---|---|---|
Risk Zone I | Risk Zone II | Risk Zone III | ||||
FSCI | FSCI | FSCI | ||||
TempD | −0.821 *** | −0.941 *** | −0.050 | 0.055 | −0.405 *** | −0.148 |
(0.240) | (0.278) | (0.145) | (0.150) | (0.134) | (0.164) | |
LnLDR | 2.515 ** | 0.431 | −1.636 *** | |||
(1.003) | (0.549) | (0.614) | ||||
LnCPI | −13.543 | −17.679 ** | −2.113 | |||
(10.133) | (7.157) | (5.828) | ||||
LnPiifa | 1.133 | 3.950 | 1.216 | |||
(4.634) | (3.880) | (3.907) | ||||
LnComT | 1.358 *** | 0.333 ** | −0.147 | |||
(0.260) | (0.133) | (0.126) | ||||
TaxR | −0.008 | 0.187 *** | −0.036 | |||
(0.070) | (0.066) | (0.100) | ||||
Constants | −1.190 ** | 48.021 | −2.508 *** | 58.813 | −2.003 *** | 2.147 |
(0.454) | (50.674) | (0.257) | (37.985) | (0.189) | (30.463) | |
Year | YES | YES | YES | YES | YES | YES |
Province | YES | YES | YES | YES | YES | YES |
N | 128 | 128 | 192 | 192 | 160 | 160 |
Adjust-R2 | 0.948 | 0.960 | 0.944 | 0.949 | 0.957 | 0.958 |
(1) | (2) | (3) | |
---|---|---|---|
FSCI | GRP | FSCI | |
TempD | −0.309 *** | −0.307 *** | −0.241 *** |
(0.088) | (0.069) | (0.089) | |
LnLDR | −0.092 | 0.340 | −0.168 |
(0.348) | (0.274) | (0.344) | |
LnCPI | −8.282 ** | −4.127 | −7.361 * |
(4.116) | (3.235) | (4.065) | |
LnPiifa | 1.152 | −0.742 | 1.318 |
(2.408) | (1.892) | (2.374) | |
LnComT | 0.212 ** | 0.046 | 0.202 ** |
(0.085) | (0.066) | (0.083) | |
TaxR | 0.095 ** | 0.909 *** | −0.108 |
(0.038) | (0.030) | (0.067) | |
GRP | 0.223 *** | ||
(0.061) | |||
Constants | 29.477 | 22.978 | 24.350 |
(21.519) | (16.910) | (21.256) | |
Year | YES | YES | YES |
Province | YES | YES | YES |
N | 480 | 480 | 480 |
Adjust-R2 | 0.950 | 0.896 | 0.951 |
Sobel test | No need |
(1) | (2) | (3) | |
---|---|---|---|
FSCI | LFR | FSCI | |
TempD | −0.309 *** | −0.010 *** | −0.259 *** |
(0.088) | (0.002) | (0.089) | |
LnLDR | −0.092 | −0.008 | −0.054 |
(0.348) | (0.010) | (0.346) | |
LnCPI | −8.282 ** | −0.269 ** | −6.986 * |
(4.116) | (0.113) | (4.111) | |
LnPiifa | 1.152 | 0.052 | 0.903 |
(2.408) | (0.066) | (2.391) | |
LnComT | 0.212 ** | −0.000 | 0.214 ** |
(0.085) | (0.002) | (0.084) | |
TaxR | 0.095 ** | 0.124 *** | −0.503 ** |
(0.038) | (0.001) | (0.219) | |
LFR | 4.828 *** | ||
(1.741) | |||
Constants | 29.477 | 1.003 * | 24.633 |
(21.519) | (0.592) | (21.425) | |
Year | YES | YES | YES |
Province | YES | YES | YES |
N | 480 | 480 | 480 |
Adjust-R2 | 0.950 | 0.991 | 0.951 |
Sobel test | No need |
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Wu, L.; Liu, D.; Lin, T. The Impact of Climate Change on Financial Stability. Sustainability 2023, 15, 11744. https://doi.org/10.3390/su151511744
Wu L, Liu D, Lin T. The Impact of Climate Change on Financial Stability. Sustainability. 2023; 15(15):11744. https://doi.org/10.3390/su151511744
Chicago/Turabian StyleWu, Lingke, Dehong Liu, and Tiantian Lin. 2023. "The Impact of Climate Change on Financial Stability" Sustainability 15, no. 15: 11744. https://doi.org/10.3390/su151511744
APA StyleWu, L., Liu, D., & Lin, T. (2023). The Impact of Climate Change on Financial Stability. Sustainability, 15(15), 11744. https://doi.org/10.3390/su151511744