The importance of public sector size and resources volatility in carbon emissions: Empirical evidence from OECD countries

Abstract

Natural resources and environmental depletion are significant concerns for both developing and developed nations. Those challenges not only surge environmental risks but also result in extensive financial damages, leading to the provision of substantial funds each year for carbon mitigation strategies. The present study aims to inspect the impact of public sector size and natural resource volatility on environmental depletion by evaluating panel data from twenty OECD member countries. Based on data availability, the selected time frame for analysis is 1995–2021. The study employs the Augmented Mean Group (AMG) approach to address potential biases arising from cross-sectional dependence (CD) and slope heterogeneity. The findings depicted a positive relationship between public sector size, natural resource volatility, and carbon dioxide (CO2) emissions in selected OECD countries. The results underscore that an increased share of government expenditures and high natural resource volatility contribute to carbon emissions. These outcomes highlight the need to condemn the highly volatile consumption of natural resources to bring stability in the resources markets and also condemn irresponsible financing of environmentally unfriendly projects for the sake of a healthier environment. The study proposed that governments should pay attention to prioritizing environmental quality when utilizing natural resources or allocating funds across various sectors.