Investigating the effects of crony capitalism on CO2 emissions

Abstract

Reducing carbon emissions is crucial on both global and national scales due to their impact on the climate. However, concerns about rent-seeking behavior hindering emissions reduction policies have arisen, as such policies can be costly. The presence of crony capitalism in countries is a significant concern in this regard, which unfortunately has not been considered a research gap. To investigate the impact of crony capitalism on CO2 emissions in 73 countries between 2000 and 2021, this study employed the innovative Method of Moment Quantile Regression (MM-QR). Four proxies for crony capitalism were used, including economic freedom, the International Country Risk Guide (ICRG) indicators, worldwide governance indicators, and a combined proxy of the three proxies aimed at reducing crony capitalism. The results indicated that all four proxies for crony capitalism significantly reduced CO2 emissions at different quantiles. The composite proxy was the most effective, while the ICRG proxy was the least effective. Additionally, all proxies except for the ICRG proxy had a greater impact on reducing CO2 emissions at high quantiles. Therefore, crony capitalism leads to an increase in CO2 emissions. The study confirmed the Kuznets curve and found that energy consumption and industrialization increase CO2 emissions, while higher energy prices and population reduce CO2 emissions.