The effect of public funding and government effectiveness on CO2 emissions in developing countries: Evidence from panel quantile analysis

Abstract

AbstractEnvironmental concerns emphasize the need for sustainable finance now more than ever. The study aims to provide a comprehensive analysis of whether public funding for renewable energy impacts environmental degradation in developing countries over time. It emphasizes the relationship between green finance, renewable energy adoption, and government effectiveness in driving sustainable development. This study examines the relationship between CO2 emissions, gross domestic product, renewable energy consumption, investments in renewable and government effectiveness. The study sample includes 34 developing countries for the period between 2000 and 2020. The analysis specifically employs public flows as a measure to gauge a country's commitment to green finance. It also employs a simultaneous panel quantile regression estimator. The results reveal a cointegrating relationship among variables, with notable findings: GDP increase correlates with CO2 emissions rise, while higher renewable energy consumption correlates with CO2 emissions decrease. Interestingly, increased public funding correlates with reduced CO2 emissions for the upper quantile. Furthermore, the analysis uncovers that government policies have yet to fully align with the sustainable development goals. These findings hold critical implications for informed policymaking. Developing countries should opt for sustainable financing and create a favorable environment for investment. Moreover, funders should ensure equitable distribution of public flows within developing countries and fund less mature technologies.