Dynamic common correlated effects of technological innovations and institutional performance on environmental quality: Evidence from East-Asia and Pacific countries

Human activities in the form of technological innovations and institutional performance are degrading environmental quality all over the world by rising the greenhouse gas (GHG) emissions and ecological footprint. The role of technological innovations and institutional performance in environmental quality has not been comprehensively explored while taking into account the cross-sectional dependence between the countries. The study analyzes the dynamic common correlated effects of technological innovations and institutional performance on environmental quality by using the panel data of East-Asia and Pacific countries for the year 1995-2018. Different proxies of greenhouse gas emissions, as well as a new indicator, 'ecological footprint' are used to measure environmental quality. Similarly, the technological innovations index is obtained by using six different innovative indicators. Traditional methodologies overlook the issues of heterogeneity and crosssectional dependence and give spurious outcomes. A novel econometric methodology, 'dynamic common correlated effects (DCCE)', is employed, which addresses the above-mentioned issues. Long-run estimation confirms that technological innovations indicate a significant and negative association with N2O, CH4, and ecological footprint and a positive relationship with CO2 emissions in lower-income and overall East-Asia and Pacific countries. However, technological innovations are positively correlated with all environmental indicators in higher-income East-Asia and Pacific countries. In the long-run, a significant and negative impact of institutional performance is observed on environmental indicators in overall and higher-income East-Asia and Pacific countries. Finally, it is suggested that if East-Asia and Pacific countries support innovative activities, strengthen their institutes and support open trade policies, then they will be able to ensure environmental sustainability.