The effect of natural capital, regional development, FDI, and natural resource rent on environmental performance: The Mediating role of green innovation

Abstract

In recent years, numerous studies have investigated the relationships between natural resource rents, FDI, and their impact on economic growth in both developed and emerging economies. However, the existing studies have overlooked the effects of natural capital and regional development on environmental performance in resource-exporting economies. Therefore, this study contributes to the existing literature by examining the effect of natural capital, regional development, foreign direct investment, and natural resource rent on the environmental performance of resource-exporting economies over the period from 2002 to 2022. Furthermore, the analysis is extended by analyzing the mediating role of green technological innovation. The study used panel unit root, cointegration test and augmented mean group (AMG) estimators for long-run and short-run relationships between study variables. Our preliminary findings confirm the existence of cross-sectional dependency, slope heterogeneity, and cointegration among the study variables. The long run empirical results obtained using the AMG estimator indicate that regional development, green innovation, natural capital, and natural resource rent contribute positively to environmental performance, while FDI has negative effect. In the short run, regional development and natural capital have negative impacts on environmental performance. Furthermore, green innovation plays a mediating role in enhancing environmental performance in resource-exporting economies. Based on the empirical findings of our study, the paper presents several policy implications for policymakers. Resource-exporting countries should implement effective policies that prioritize the restoration of environmental quality and emphasize green technological innovation to achieve their sustainable development goals.