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Dynamic common correlated effects of trade openness, FDI, and institutional performance on environmental quality: evidence from OIC countries

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Abstract

The study aims to address the dynamic common correlated effects of trade openness, FDI, and institutional performance on environmental quality in OIC countries. Mostly, pollutants like CO2 and SO2 emissions are considered as the environmental indicators. However, for this study, we have selected ecological footprint as the indicator of environmental quality. The new econometric approach Dynamic Common Correlated Effects (DCCE) by Chudik and Pesaran (2015) has been used to measure the cross-sectional dependence among cross-sectional units. Results confirm that previous techniques for long panel data, like MG and PMG, give ambiguous outcomes in the presence of cross-sectional dependence. According to DCCE estimation, trade openness, FDI, and urbanization have a positive and significant relationship with ecological footprint while a significant and negative association is found between institutional performance and ecological footprint. The OIC countries must encourage green technology, clean production, and improved institutions for sustainable development and better environmental quality.

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Notes

  1. We followed Globerman and Shapiro (2002), Buchanan et al. (2012), Law et al. (2014), and Khan et al. (2019a, b) which used panel PCA to construct a composite institutional indicator.

  2. Further details can be obtained from the official website of ICRG (https://www.prsgroup.com/)

  3. Worldwide Governance Indicators (WGI) by Kaufmann et al. (2008) covers short time period, i.e., from 1996 to date, while the indicators of International Country Risk Guide (ICRG) have relatively long time span, i.e., from 1984 to date.

  4. xtwest command is used for Westerlund cointegration

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Authors and Affiliations

  1. Faculty of Economics and Management, Universiti Putra, Seri Kembangan, Malaysia

    Sajid Ali, Zulkornain Yusop, Shivee Ranjanee Kaliappan & Lee Chin

  2. Putra Business School, Seri Kembangan, Malaysia

    Zulkornain Yusop

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  1. Sajid Ali
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Appendices

Appendix A

Table 10 List of OIC countries with ecological footprint
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Appendix B

Table 11 List of selected OIC countries in sample
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Ali, S., Yusop, Z., Kaliappan, S.R. et al. Dynamic common correlated effects of trade openness, FDI, and institutional performance on environmental quality: evidence from OIC countries. Environ Sci Pollut Res 27, 11671–11682 (2020). https://doi.org/10.1007/s11356-020-07768-7

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