The disaggregated environmental effects of growth and distributional heterogeneity: Evidence from emerging markets economies

Abstract

The environment-growth literature mainly relies on reduced-form approaches and overlooks the environmental role of technological changes and structural effects of growth. Providing comprehensive evidence on the decomposed environment-growth linkages also demands accounting for the distributional heterogeneity. Accordingly, we examine the decomposed structural effects of economic growth on GHG emissions in the presence of renewable energy and institutional quality in 29 Emerging Market Economies (EMEs) using different panel estimation approaches. Based on the panel MM-Quantile Regression model, which allows for unobserved distributional heterogeneity, our findings invariably confirm that economic growth in EMEs creates positive scale and composition effects—an increase in the scale-and composition-induced economic growth tends to worsen environmental pressures. In contrast, growth appears to reduce emissions through its technique effect. Renewable energy and Institutional quality are also negatively related to GHG emissions, with the impacts being stronger in lower-emitting countries. These results are robust to alternative panel regression models considered in the paper. Further, the impacts of all variables are heterogeneously distributed across different GHG emission levels. The negative moderating role of renewable energy and institutional quality in the growth-GHG emissions linkage strongly suggests that EMEs need to accelerate their green growth transition by expanding the share of renewable energy technologies and improving their institutional frameworks.