IMPACT OF INSTITUTIONAL QUALITY AND ECONOMIC GROWTH ON ENVIRONMENTAL DEGRADATION: EVIDENCE FROM SOUTH ASIAN ECONOMIES

Abstract

Climate change mitigation is now a global concern of key importance, especially in developing regions where economic growth, urbanization and rising energy consumption are driving up carbon emissions. Sustainability is a complex issue in South Asian economies, where achieving economic growth and tackling environmental degradation are intertwined challenges. In this study, institutional quality, economic growth, squared economic growth, foreign direct investments and urbanization are explored as key determinants of the carbon emissions for seven South Asian economies comprising Bhutan, Pakistan, India, Maldives, Nepal, Bangladesh and Sri Lanka, for time period of 2002-2024. The quality of institutions is captured in an index combining government effectiveness, rule of law, control of corruption and regulatory quality. The panel quantile regression results show that there is a consistent negative linkage between institutional quality and environmental degradation at every level, indicating that sound institutional governance is crucial for environmental sustainability. Economic growth first does raise emissions and the negative impact of squared income validates the Environmental Kuznets Curve hypothesis. Additionally, foreign direct investment and urbanization leads to higher emissions, due to carbon-intensive investment processes and rapid urbanization in the region. The results highlight the need to build institutional capacity to support the implementation of effective climate policies and to speed up low-carbon development pathways. This study contributes to the Sustainable Development Goals (SDGs) and identifies governance-led solutions to sustainable environmental management.