Investigating the role of economic complexity in sustainable development and environmental sustainability

Abstract

A productive economic structure, represented by economic complexity (ECP), augments the economic development of nations. However, previous empirical investigations on this topic are confined to understanding the direct effects of economic complexity on environmental quality with equivocal outcomes. Therefore, this study not only probed the effects of ECP on the ecological footprint (EF) but also explored the indirect environmental effects of ECP through the channel of economic growth. To do so, the study employed the unit-root tests with structural breaks and without structural breaks. Afterward, the newly developed Augmented Autoregressive Distributed Lag (AARDL) method was used on the time series Indian data from 1970 to 2017 in the Stochastic Impacts by Regression on Population, Affluence and Technology (STIRPAT) framework. The findings disclosed cointegration among the selected variables. Notably, the AARDL test provided a reliable conclusion by using three different tests compared to the conventional ARDL model that relies on just one F-statistics. The long-run empirical results unfolded that ECP not only reduces footprint but also decreases the adverse environmental impacts of economic growth. In addition, energy intensity and economic growth contribute to escalating the EF, and thereby, increase environmental degradation. Nevertheless, population density decreases the footprint, and thus, stimulates ecological sustainability. Besides, ECP Granger causes EF. After this, several diagnostic tests were performed to confirm the stability of the models and the results were verified using the Fully Modified Ordinary Least Squares test. Lastly, the study directed policies to increase the level of sophisticated knowledge-based production for sustainable growth.