How do financial spatial structure and economic agglomeration affect carbon emission intensity? Theory extension and evidence from China

This study investigates the mechanism of a financial spatial structure and economic agglomeration on carbon emission intensity by combining a reconstructed financial spatial structure indicator that integrates spatiality, industrial affiliation, and competition with a theoretical model of financial spatial structure and economic agglomeration impacts on carbon emission intensity under increasing returns to scale assumption. We employ a dynamic spatial Durbin panel model with data from provinces in China during 2005–2017 to validate the theoretical mechanism. The results indicate that both short- and long-term financial spatial structures can mitigate carbon emission intensity, thereby demonstrating spatial and temporal lock-in effects. However, economic agglomeration and energy intensity promote carbon emission intensity with only temporal lock-in effects. Moreover, the financial spatial structure tends to have a smaller but more far-ranging, long-term impact. The analysis implies that promoting financial spatial restructuring through strategic credit allocation, industrial linkage, and competition and mitigating economic agglomeration are crucial to expedite the process of “carbon peak and neutrality.” •Reconstruct financial indicators on spatiality, industry linkage, and competition.•Improve output density function from Hicks Neutrality, input, and output sides.•Propose a new theoretical model on drivers of CO2 intensity.•Financial spatial structure mitigates CO2 intensity with a deeper long-term impact.•Economic agglomeration raises CO2 intensity and is crucial to CO2 reduction.