How trade diversification affects resources sustainability in China: Exploring the role of institutional quality and environmental policies uncertainty

Abstract

Natural resources are imperative to foster economic progression; however, unsustainable resource allocation elevated natural resource depletion and drastic environmental menaces. Besides, the worldwide COVID-19 pandemic has emerged as a worldwide uncertainty that dampens economic performance, whereas the economic recovery from the pandemic intensifies resource exploitation. Manifestly, China has attained tremendous economic progress in the last few decades, but unremitting and intensive resource consumption triggers the material footprint (MF) in China. Therefore, evaluating the mitigating factors to inhibit MF is essential. This study elucidates the impact of trade diversification (TD), institutional quality (IQ), ecological regulation (ER) and economic uncertainty (EPU) on MF in China from Q1-2000 to Q4-2021. The autoregressive distributed lag (ARDL) approach is employed to investigate the short and long-run model's relationship. The unit root testing affirms the stationarity conditions of variables at the first difference, while the bound ARDL co-integration test endorse the long-run co-integration association. The findings exhibit that TD, IQ and ER reduces MF, whereas the EPU significantly derives MF. Short-run parameters echoed identical outcomes with lower magnitudes, and the co-integrating term significantly converges the model to a long-run equilibrium position with 65.7% per annum. Overall the research offers stringent and resilient-ecological policies to diversify the trade basket and develop a sound institutional structure to decrease the uncertain global shocks and resource inefficiencies.