The determinants of solid waste generation in the OECD: Evidence from cross-elasticity changes in a common correlated effects framework

Abstract

Following the COP26 summit, the management of solid waste has been identified as a major policy issue that can only be tackled if nations reorient their innovational endeavors. However, the present academic and policy discourse cannot provide a consensus on how to address this issue at the policy level. The absence of a comprehensive policy framework for achieving this reorientation and addressing the issue has motivated the present study. This paper conducts a comparative investigation of the long-run determinants of municipal solid waste (MSW) generation for the 10 best and least recycling economies in the OECD. We consider a set of technological, regulatory, and institutional regressors such as eco-innovation, environmental tax revenue, governance quality, an index of the structural transformation of the economy, and the capital-to-labor ratio. Based on data with the highest availability and spanning the longest time period (2000–2018), our study adopts a common correlated effects framework accounting for heterogeneity and cross-sectional dependence within the sample. Results of individual impacts show that eco-innovation, environmental tax, governance quality, and capital-to-labor ratio decrease the generation of solid waste with a larger size effect in the top-10 recycling sample of countries. However, findings derived from the dynamic elasticity-based interactive effects stress that environmental tax and governance quality enhance the environmental impact of eco-innovation, whereas structural transformation of the economy and capital-to-labor ratio lower the size of this effect, with a much lower magnitude in the bottom-10 recycling OECD economies. Associated policy recommendations are aimed at aiding the design of adequate waste management policies in the OECD, with inclusive knowledge on this topic.