Does the quality of institutions modify the economic growth-carbon dioxide emissions nexus? Evidence from a group of emerging and developing countries

The purpose of the study is to examine the impact of economic growth on carbon dioxide emissions dependent on the quality of institutions, for a sample of 93 emerging and developing countries over the period 1995-2014. We measured institutional quality using government effectiveness and control of corruption indicators. The GMM estimation results indicate that government effectiveness modifies the economic growth-emissions relationship. For low values of this institutional indicator, we found diminishing increments of CO2 emissions as GDP grows. In the case of countries with high government effectiveness, we observed a statistically significant reduction in CO2 emissions only in some specifications. We did not confirm the moderating role of the control of corruption in shaping the economic growth-carbon dioxide emissions nexus. These findings have important policy implications, suggesting that countries should direct efforts to improve the institutional background. Additionally, we provide empirical support for the presence of the inverted U-shaped relationship between economic growth and carbon dioxide emissions postulated by the environmental Kuznets curve (EKC).