Institutional quality, financial development and the influence of environmental factors on carbon emissions: evidence from a global perspective.

ABSTRACT

This study explores the moderating role of institutional quality on carbon emissions using data from a global panel regarding renewable energy consumption, foreign direct investment, economic growth and financial development between 2002 and 2019. Using the two-step system generalized method of moments, the results illustrate that in the panel data, renewable energy usage and foreign direct investment inflow enhance environmental quality, while financial development and economic growth lower it. The results show that many countries' quality institutions cannot yet adequately mitigate the harmful impact of each environmental factor and protect the environment; however, the institutional quality interaction term confirms the significant moderating effect of all explanatory variables on environmental quality in the panel data. The findings also confirm the existence of the environmental Kuznets curve and demonstrate the pollution halo hypothesis. The findings in this paper may be useful for policymakers when enacting stricter environmental regulations.