An environmental impact assessment of economic complexity and energy consumption: Does institutional quality make a difference?

Abstract

The relationship between ecological footprint and economic complexity has important policy implications for environmental sustainability. Furthermore, institutional quality can be an imperative tool to ensure environmental sustainability, and it may also moderate the nexus between economic complexity and ecological footprint. Therefore, this study investigates the linkage between economic complexity, institutional quality, disaggregated energy consumption, and economic growth on environmental degradation in emerging countries from 1984 to 2017. In addition, it also probes the moderating effect of institutional quality in the nexus between economic complexity and footprint. To do so, the study applies an advanced econometric approach, cross-sectional autoregressive distributed lags (CS-ARDL) estimator, for short-run and long-run estimation, that allows heterogeneity in the slope parameters and dependencies across countries. The analytical outcomes demonstrate that economic complexity increases environmental degradation by exacerbating ecological footprint, while a high level of economic complexity mitigates ecological footprint. The findings of the study unfold that institutional quality supports environmental sustainability by reducing the ecological footprint. The outcomes also indicated that institutional quality promotes environmental sustainability by moderating the nexus between economic complexity and ecological degradation. Moreover, renewable energy is found to decrease ecological footprint, whereas non-renewable energy use leads to intensifying the ecological footprint. It was also found that there is an inverted u-shaped association between ecological footprint and economic growth. Based on the results, the study suggests that emerging countries should accelerate economic complexity along with a stronger institutional framework to combat environmental issues without compromising sustainable economic growth.