Research 

Abstract: This study examines how financial development affects the environmental performance of manufacturing firms. Exploiting state-level variation in the credit-to-GDP ratio and detailed energy consumption data from Indian manufacturing firms during the 1990s and 2000s, I find that financial development significantly reduces firm fuel intensity. To uncover the underlying mechanisms, I combine highly disaggregated product-level production and energy consumption data. The results show that financial development lowers fuel intensity through technological upgrading, the adoption of cleaner fuels, and a reallocation of production toward cleaner products. Heterogeneity analysis further shows that these effects are more pronounced among older and larger firms, firms facing higher initial borrowing costs, and firms located in states with limited energy availability and active environmental regulations. Overall, the findings highlight the important role of financial sector development in improving the environmental performance of manufacturing firms and promoting sustainable industrial development.

.