The impacts of economic policy uncertainties on carbon dioxide emissions of emerging and low-income developing countries: the moderating role of institutional quality

Abstract

Purpose

This study is aimed to examine the effects of the economic policy uncertainty (EPU) on carbon dioxide (CO₂) emissions. It further aimed to investigate the moderating role of institutional quality on the impacts of EPU on CO₂ emissions.

Design/methodology/approach

The authors apply the two-step system-generalized method of moments (GMM) for 112 emerging economies and low-income developing countries (hereafter, developing countries) for the period 2000–2019.

Findings

The findings reveal that the effects of EPU on CO₂ emissions are positive. Specifically, a percent increase in EPU results in a 0.047% increase in CO₂ emissions in developing countries. However, the effects of institutional quality on CO₂ emissions are negative, certifying that strong institutional quality reduces emissions. Also, the results confirm that the positive effect of EPU on CO₂ emissions is weaker in countries with relatively strong institutional quality.

Practical implications

Policymakers should be more vigilant while designing and implementing economic policies. Also, the government should support firms investing in environment-friendly innovations during high EPU. Besides, developing countries should improve institutional quality to mitigate the effect of EPU on CO₂ emissions.

Originality/value

This study is the first in its kind to examine the impacts of EPU on CO₂ emissions in developing countries. It also provides a different viewpoint on the EPU–CO₂ relationship and reinterprets it through the moderating role of institutional quality.

Citation

Borojo, D.G., Yushi, J. and Miao, M. (2023), "The impacts of economic policy uncertainties on carbon dioxide emissions of emerging and low-income developing countries: the moderating role of institutional quality", International Journal of Emerging Markets, Vol. 18 No. 11, pp. 5408-5431. https://doi.org/10.1108/IJOEM-07-2021-1044