Combined role of economic openness, financial deepening, biological capacity, and human capital in achieving ecological sustainability

Abstract

The growing human demand for natural capital driven by anthropogenic activities may result in ecological overshoot, therefore, it has become inevitable to rethink sustainable pathways to conduct socioeconomic activities. In this regard, the criticality of international economic activities and the formation of heterogeneous financial, natural, and human assets for ecological systems has not been well understood. Against this backdrop, this study is the initial attempt to investigate the combined impact of economic openness and multifaceted capital (i.e., financial deepening, biological capacity, and human capital) on ecological sustainability in the stochastic impacts by regression on population, affluence, and technology model setting. We employed the state-of-the-art panel quantile regression estimator on a sample of selected 25 Belt and Road Initiative member economies from 1990 through 2018 and found that economic openness and financial deepening undermine ecological sustainability, particularly in BRI member countries with higher ecological footprints. Human capital formation strengthens countries' ecological sustainability across all quantile levels. However, biological capacity expansion supports ecological sustainability for countries with lower and medium ecological footprint levels, whereas it plays a neutral role for higher quantiles. The strengths of the relationships mentioned above increase from lower to higher quantiles. We found no evidence of the Environmental Kuznets Curve theory. Based on our results, we recommend enhancing green openness trade policies in BRI countries to prevent the ecological degradation influence of economic openness. Additionally, to turn the ecologically detrimental effects of financial deepening into useful ones, financial institutions should be incentivized to allocate credits and loans to ecologically friendly ventures. Ecological protection policies, including increasing forest rent, may prevent deforestation and conserve natural capital, contributing to the achievement of the United Nations' Sustainable Development Goals.