Can Using Energy Resources Productively and Promoting Good Governance Boost Carbon Productivity? An Economic Growth-Environmental Degradation Decoupling Analysis on 116 Global Countries

Abstract

Decoupling economic growth from environmental pollution for promoting low-carbon growth has become a global objective. Though the previous studies have mostly analyzed how environmental pollution can be reduced, not much emphasis was given to assessing how economic growth can be enhanced while limiting environmental damages in tandem. Hence, this study examines how carbon productivity is determined by energy productivity improvement, good governance, financial development, financial globalization, and international trade using data from 116 global economies. Overall, the analytical findings reveal that energy productivity improvement initially cannot decouple economic growth from environmental pollution by inhibiting carbon productivity. However, later on, using energy productively does manage to decouple economic growth from environmental pollution by boosting carbon productivity. Accordingly, the U-shaped nexus between these variables is confirmed by these statistical findings. Besides, the results also endorse the carbon productivity-boosting effects of good governance, financial development, and international trade while foreign direct investment receipts are not found to exert any significant impact on carbon productivity. On the other hand, the robustness tests' results affirm that the carbon productivity-influencing impacts are heterogeneous across countries belonging from different categories of national income, carbon productivity, energy productivity, governance, and regional locations, as well. Nevertheless, the results overall confirm that countries having comparatively higher levels of energy productivity and governance are more likely to decouple the growth of their respective economies from environmental pollution. Based on these findings, some decoupling policies are recommended.