Role of Institutional Quality on Environmental Kuznets Curve: A Comparative Study in Developed and Developing Countries

Abstract

This study aims to examine the Environmental Kuznets Curve (EKC) hypothesis in the case of 100 developed and developing nations by taking into account the role of institutional quality (IQ). Using generalized method of moments (GMM) estimators, we find an inverted U-shaped relationship between economic growth and carbon dioxide (CO₂) emissions only in the developed world but not in the developing nations. It is also revealed that control of corruption plays a vital role in reducing CO₂ emissions in high income countries. Furthermore, rule of law is found to have a beneficial effect on the environment in all countries except for low income countries. Overall, our results confirm the importance of IQ in reducing CO₂ emissions. Additionally, foreign direct investment contributes to CO₂ reduction in rich countries while deteriorates the environmental quality in developing nations. Trade openness was shown to exert a positive impact on environmental quality in developing countries. These findings can be of great importance to policy makers of different income groups in designing appropriate economic and environmental policies toward the dual goals of high growth and low pollution.

Citation

Lau, L.-S., Choong, C.-K. and Ng, C.-F. (2018), "Role of Institutional Quality on Environmental Kuznets Curve: A Comparative Study in Developed and Developing Countries", Advances in Pacific Basin Business, Economics and Finance (Advances in Pacific Basin Business, Economics and Finance, Vol. 6), Emerald Publishing Limited, Leeds, pp. 223-247. https://doi.org/10.1108/S2514-465020180000006007