Heterogeneous effects of energy productivity improvement on consumption-based carbon footprints in developed and developing countries: The relevance of improving institutional quality

Abstract

Economic expansion often causes multifaceted damages to environmental well-being. Thus, the persistent degradation in the global environment has become a concerning issue for both developed and developing regions across the world. Against this backdrop, this study checks how the per capita carbon footprint figures of the developed Group of Seven (G7) and the developing Emerging Seven (E7) countries are influenced by energy productivity improvement, institutional quality, and other key macroeconomic factors. Considering annual data from 2000 to 2020, advanced panel data estimation techniques that are robust against data-related problems such as endogeneity, heterogeneous slope coefficients, and dependency among the cross-sectional units are utilized. Overall, the results certify that making productive use of energy reduces consumption-based carbon footprints in E7 countries but not in G7 countries. Besides, improving institutional quality is seen to not only reduce carbon footprints in both samples directly but also indirectly mediate and moderate the energy productivity-carbon footprint nexus in G7 and E7 countries, respectively. Moreover, financial globalization is observed to minimize carbon footprints in G7 countries while boosting them in E7 countries. Contrastingly, financial development is observed to homogeneously boost the carbon footprint levels of both G7 and E7 countries. Lastly, international trade is found not to influence the carbon footprint levels in both samples of countries. Therefore, taking these major findings into consideration, a set of policies apart from making optimal use of energy are recommended for inhibiting the consumption-based carbon footprint figures of the concerned countries.