Threshold effect of financial development on water resources utilization

The role of financial development in enhancing water resources and its utilization is imperative for attaining the country’s sustainable development. This paper used different stages of financial development indices and their resulting impact on water resource utilization in order to examine the threshold effect in China by using panel data from 2004 to 2015. This study put forward the threshold effect hypothesis by establishing a general equilibrium model. Further, the study employed the panel threshold model and panel fixed effect model to test the above hypothesis empirically. The results show that the single threshold effect exists in the relationship between financial development and water resource utilization. The impact of financial development on water resource utilization is not a simple linear relationship. When the growth rate of financial development is lower than the threshold value, there is a certain “threshold effect”. Spatial heterogeneity affects the relationship between financial development and water resource utilization. Finally, the study found financial development in coastal areas with abundant water resources is relatively higher.