Natural resources, fiscal decentralization, and environmental quality in China: an empirical analysis from QARDL approach

It is generally believed that fiscal decentralization is an essential way to increase the overall effectiveness and efficiency of the government through the transfer of financial autonomy to the local governments. On the same lines, this study attempts to confabulate the influence of two important economic indicators, (i) fiscal decentralization and (ii) natural resource rent in validation of the environmental Kuznets curve hypothesis. Our current analysis is grounded upon a developing economy — China — and will serve as a stepping stone for the similar economies. The time period for the empirical estimation is from 1990 to 2020. The study applied an advanced econometrics approach, called the quantile autoregressive distributed lag (QARDL), which has many advantages as compared to any conventional approach. The empirical outcomes, after estimations, illustrate that in the long run, FDE is having an unfavorable connotation with CO2 emissions. NRR is another essential factor influencing the CO2 emissions in the long run in the selected economy. The estimated outcomes are revealing the presence of the EKC. Furthermore, the present research elucidates the existence of the bi-directional causality between selected economic indicators, FDE and CO2 emissions, and GDP square and CO2 emissions. But there is a unidirectional causality between GDP and CO2 emissions. Thus, policymakers should encourage the transfer of powers to the lower tiers of government to ameliorate environmental quality in the Chinese economy.