Sustainable Futures (Jun 2024)
The interaction of institutional quality, economic complexity, and carbon dioxide emission: An empirical examination for China and Pakistan
Abstract
Environmental quality (EQ) emerged as a top priority for the governments of China and Pakistan as both countries are at potential risk of environmental degradation. Therefore, it is critical to identify the factors that adversely affect environmental quality and alleviate the detrimental consequences of global warming. To mitigate the negative consequences of carbon (CO2) emissions in complex environments, institutions play a critical role in sustainable economic development. Thus, this study made a pioneering effort to discover the integrated link between economic complexity (EC) and carbon emissions (CO2) with the interaction of institutional quality (IQ). Furthermore, the study is a unique effort in modeling China and Pakistan in a framework to treasure the better comparison for generalizability of outcomes. Time series analysis was conducted from 1996 to 2021 using the Autoregressive Distributed Lag (ARDL) approach. The results revealed that EC raises emissions over time in China and Pakistan. Due to the disparity in IQ between China and Pakistan, IQ only lowers the risk of emissions in China. However, extremely high emissions evaporate the effect of interventions on environmental quality because both nations are major polluters, IQ has little influence on environmental quality and strengthens the relationship between EC and CO2 while used as an interaction term. Therefore, industries must exploit poor governance in complex countries with limited laws or regulations, resulting in greater carbon emissions. Thus, to reduce greenhouse gases while boosting economic development, policymakers should strengthen institutions, encourage environmentally friendly methods, and foster innovation in technologies with low carbon footprints.
