Macroeconomic indicators of environmental sustainability: A worldwide perspective

Abstract

Global warming is the major environmental concern and the main cause of it is the greenhouse effect caused by greenhouse gases. CO2 is the most potent greenhouse gas. To effectively control global warming, there is a need to identify potential macroeconomic activities that trigger and mitigate these emissions. This study measures the effects of foreign direct investment (FDI), renewable energy consumption (REC), urbanization (UB), trade openness (TRO), and ecological footprint (EF) on environmental sustainability by taking CO2 emissions as a proxy for it. The study employs panel data of 143 countries from 2001 to 2020. Data show the presence of cross sectional dependency and slope heterogeneity and suggest the use of second-generation panel unit root tests, which confirm the presence of unit root at either level or the first difference. The Westerlund cointegration test confirms the presence of a long-term connection between the variables. The study uses System GMM to estimate the parameters and finds that REC mitigates CO2 emissions and restores the environment, while FDI, UP, TRO, and EF trigger these emissions leading to environmental degradation. The study also prescribes policy recommendations for improvement in environmental quality