The effect of institutions and urbanization on environmental quality: evidence from the Belt and Road Initiative countries using dynamic panel models

Increased globalization in urban areas raise energy consumption that leads to high carbon dioxide discharge and degrade environmental quality. Other economic activities also produce emission; however, a well-established institutional framework can overcome the issues of environmental degradation and minimize the effect of harmful factors on the environment. In this regard, this study investigates the effect of urbanization, energy consumption, and industrialization on carbon dioxide emission by taking into consideration the role of institutional quality in the Belt and Road Initiative (BRI) countries for the period of 2002 to 2019. Employing dynamic panel techniques, the results are in line with theories which show that increased urbanization, energy consumption, industrialization, and economic growth raise carbon dioxide emission and lead to environmental degradation. The study also found that international trade and political stability reduce emission; however, institutional quality as a whole positively affects carbon dioxide emission. The study also found a U-shape relationship between urbanization and carbon dioxide emission. The interaction term between institutional quality and urbanization significantly mitigates carbon dioxide emission and raise environmental sustainability. The findings of this study have considerable policy suggestions for the sample countries.