Environmental innovation, trade openness and quality institutions: an integrated investigation about environmental sustainability

Environmental degradation has become an important issue for countries worldwide due to increase in carbon emission in recent years. It is an important concern for countries to achieve environmental sustainability; however, the debate on the role of innovation and institutions in environmental sustainability is still not adequate. There is a lack of understanding as to how countries can achieve higher economic growth as well to protect the quality of environment. Innovation is considered as effective tools as it enhances energy efficiency and cleaner production, which in turn lowers carbon emission. Quality institutions have also been considered as it enhances the quality of environment. Consequently, this study investigates trade openness, innovation and quality institutions in environmental sustainability in 176 countries of the world. By employing OLS regression, fixed effect and generalized method of moments, the results show that trade openness, renewable energy consumption and foreign direct investment are negatively associated with carbon emission, whereas most of institutional quality indicators significantly contribute to environmental sustainability; however, it is still below the desired level to enhance the quality of environment. Innovation positively and innovation square negatively affect carbon emission. Our analysis also confirms the existence of environmental Kuznets curve hypothesis and pollution halo hypothesis. The findings suggest policy makers on further improvement of trade policies, innovations, promotions of political and legal institutions and promotion of renewable energy sources to cope with environmental sustainability.