How do the exploitation of natural resources and fiscal policy affect green growth? Moderating role of ecological governance in G7 countries

Abstract

Natural resource consumption fulfil the necessities of any society. The way these resources are extracted matters for the economy and environmental quality. Likewise, increasing resource consumption and fiscal policies direct the green economic recovery. Green growth (GG), or environmentally adjusted multifactor productivity growth, is imperative to track sustainable economic performance. Therefore, this study explores the relevance of natural resources, fiscal policy, R&D spending, and ecological governance in deriving the GG of G7 countries from 1990 to 2020. Using Methods of Moments Quantiles, the results exhibit that fiscal policy, R&D spending, and ecological governance contribute to GG, while natural resources produce inhibitory effects. The positive influence of fiscal policy and ecological governance (R&D spending) is higher at lower (higher) quantiles. Inhibitory effects of natural resources are higher at lower quantiles and vice versa. However, the negative impact of natural resources is neutralised with the integration of ecological governance. This proposition is valued using the moderation term of both variables. Similarly, results are endorsed using alternative estimators addressing cross-sectional dependency and slope heterogeneity and offering valuable recommendations.