Effect of institutional quality and renewable energy consumption on CO2 emissions-an empirical investigation for developing countries.

Abstract

This paper investigates the role of institutional quality in moderating the impact of energy consumption on CO2 emission, with other variables such as trade, capital formation, FDI, financial development and population in 39 developing countries for 1995-2017. We use mean group (MG), augmented mean group (AMG), common correlated effects mean group (CCEMG) estimator, dynamic system GMM, panel grouped-mean FMOLS and panel quantile regression for the empirical results. From the different estimation techniques, we find that institutional quality moderates energy consumption and strengthens its effectiveness in abating carbon emissions. The combined influence of institutional quality and sector wise energy consumption on emissions is significant and negative. Our finding also confirms the Environmental Kuznets curve (EKC) hypothesis in the presence of institutional quality. Renewable energy consumption is also found to reduce emissions significantly in the long run. Given the importance of institutional quality and renewable energy in reducing CO2 emission, the policymakers need to improve the quality of institutions and deploy more renewable energy for final consumption to achieve long-term climate goals.