Bank presence, green lending, and firms’ technology adoption

Green technologies that are less resource-intensive hold the potential to mitigate the negative effects of climate change both by helping firms cope with adverse events (e.g., withstanding network power outages or increase in costs of traditional energy sources) and by lowering carbon emissions at the aggregate level. However, limited access to financing and poor management practices in LICs prevent many firms from adopting these technologies. This research will focus on this first barrier by studying whether increased access to bank credit facilitates technology adoption and, in particular, the adoption of green technologies among SMEs in India. 

To answer these questions, the researchers will build a series of unique datasets by combining panel data from the Reserve Bank of India (RBI) on bank credit supply with text and balance sheet data at the firm level. To identify the causal impact of variations in credit supply across geographical units on technology adoption, the researchers will adopt a data-driven instrumental variable approach in the spirit of Greenstone et al. (2020): first, they will measure lending supply at the district level using the weighted average of the bank lending policies of all banks operating in the district. Second, they will identify firms’ adoption of green technologies in response to changes in credit supply. In addition, the study will estimate the differential impact of credit supply on technology adoption along the characteristics of banks, firms, and geographical units.    

This study will add to the current debate on climate change and the green transition in several important ways. First, it will provide evidence of how SMEs operating in LICs may contribute to climate change mitigation by investing in climate friendly technologies. Second, it will show whether external finance plays a role in the green transition, thus providing important results to inform banking policy. Finally, it will provide insights that can be generalised and extended to several low- and medium-income countries where private firms face high energy demand paired with binding financial constraints. 


Giorgia Barboni

University of Warwick

Anca Balietti

Heidelberg University

Emilia Garcia-Appendini

Norges Bank and University of Zurich