Dynamic influence of natural resources, financial integration and eco-innovation on ecological sustainability in EKC framework: Fresh insights from China

Abstract

The relation between inclusive natural resources and ecological pollution has significant environmental implications. Though, the literature on this question is scarce and has inconclusive results from the perspective of financial integration. The substantial economic growth, energy sources, and technological advancement have increased China's extraction and consumption of natural resources. The study aims to probe the effects of natural resources, financial integration, eco-innovation, and clean energy on the ecological footprint in the Environment Kuznets Curve (EKC) concept. Notably, the authors further bifurcate the financial integration into Model 1 (the ratio of FDI to GDP) and Model 2 (capital account openness). This paper applied a novel dynamic autoregressive distributive lag (D-ARDL) technique that is efficient enough to automatically draw positive and negative simulations of the explanatory variables for the period 1980–2020. Outcomes of this study discovered that natural resources decrease ecological degradation in the short- and long-run. More so, the dynamic results explain that financial integration degrades the ecological quality whilst renewable energy and eco-innovation preserve the environmental performance. Interestingly, this study endorses the presence of the EKC hypothesis in developing countries like China. In the end, comprehensive policy recommendations and limitations are proposed to recover the ecological quality.