Does economic complexity influence environmental performance? Empirical evidence from OECD countries

Abstract

AbstractEnvironmental degradation is a major challenge facing the world. Our view is that a country's productive structure, reflected through its knowledge content and technical capabilities (economic complexity), is strongly correlated with its environmental performance. To empirically confirm this view, the link between economic complexity and environmental performance in member countries of the Organization for Economic Co‐operation and Development (OECD) was examined within a modified version of the Stochastic Impacts by Regression on Population, Affluence and Technology (STIRPAT) model incorporating two alternative measures of economic complexity. The model was estimated using the fixed effects extension proposed by Driscoll and Kraay (DK‐FE) and Generalized Method of Moments (GMM) estimation techniques. Granger causality testing in frequency domain was also employed to examine country‐specific relationships. The sample period extended from 2007 to 2016. The study findings provided reliable empirical justification for our position. The coefficients for economic complexity in the long‐run estimations revealed that economic complexity positively impacted on environmental performance in the OECD countries. Granger causality outcomes also indicated economic complexity as a meaningful predictor of environmental performance in most of the OECD countries.