Investigating the connections between innovation, natural resource extraction, and environmental pollution in OECD nations; examining the role of capital formation

Abstract

During the past decade, research on natural resources and environmental pollution has gained a lot of coverage. This research looks at the degree to which innovation and natural resource extraction help to alleviate environmental pollution. Cointegration, 2-step System GMM, and DH Causality estimators were applied over the period 2000–2021 to a panel of 26 OECD economies. Using environmental patents as innovation and natural resource rent as natural resource extraction, the findings indicate that innovation and natural resource extraction exhibit eco-footprint reduction properties but CO2-increasing functions. Other factors such as energy transition and population are negative and statistically significant to eco-foot print with energy transition reducing CO2 outflow and population increasing CO2 outflow. Capital, on the other hand, reduces eco-footprint but increases CO2 outflows. The study revealed a negative moderating effect on eco-footprint and a positive effect on CO2 outflows. There is a U-shaped threshold effect of innovation on environmental pollution. The findings produce double-track causation between innovation, energy transition, capital and population, and environmental pollution, and single-track causation exists between natural resources and environmental pollution. The study suggests that while innovation is capable of reducing environmental pollution, it must be combined with an increase in capital injection and energy transition.