The nexus between the dependence on natural resources and environmental sustainability: Does institutional matter?

Abstract

Rapid increases in production and consumption associated with high growth levels have led to a significant rise in ecological challenges, including climate change and the exhaustion of natural resources (NRs). NRs have an encouraging effect on the economic progress of many emerging and developing economies; however, these countries may lack resource sustainability owing to deficient natural resource management and low institutional quality (IQ). In this sense, this study aims to investigate the relationship between excessive natural resource dependence (NRD) and environmental sustainability (ES) considering the presence of IQ, human progress, population growth (POP), renewable energy use (REN), urbanization (URB), foreign direct investment (FDI), and economic growth (EG). It applies country and time Fixed-effects (FE) panel data models to unbalanced panel data of 86 countries from emerging market and middle-income economies (EMMIEs) for the main purpose of analysis. The results reveal that natural resource rent, GDP per capita, human development index (HDI), and URB adversely affect ES, using carbon dioxide (CO₂) emissions per capita and ecological footprint (EF) as dependent variables. In contrast, FDI, IQ, and REN variables have a promising effect on the environment. When the disaggregated impact of natural resource rents on ES is analyzed, the findings indicate that oil rents have a significant positive outcome on both CO₂ per capita and EF. On the contrary, forest rent and mineral rent are concluded to have insignificant effects on ES. The investigation highlights a need for reduced dependence on NRs, strengthening environmental regulations, and a transition to renewable energy sources due to their affordability and potential to reduce the extensive use of non-renewable resources. FDI is strongly recommended as an alternative avenue for EG in EMMIEs due to its positive externalities' effects on ES.