A new approach to analyze determinants of environmental quality: evidence from E7 countries by panel approaches

Abstract

Environmental degradation has escalated dramatically with increased production levels across all countries over recent decades, becoming a critical global issue. The deteriorating environment poses a significant threat, making studying environmental determinants a key focus for scholars. In this context, this research analyzes drivers of environmental quality in E7 countries. This study diverges from previous research that typically uses carbon dioxide (CO2) emissions as proxy for ecological quality, by using data from 1990 to 2022 and applying panel data approaches. Instead, this research uses load capacity factor, which provides a more comprehensive measure through considering demand and supply sides of the environment together, while ecological footprint (EF) is used for the robustness. The results show that on environmental quality (i) income has a reducing impact; (ii) fossil energy has a declining effect; (iii) corruption has a decreasing impact; (iv) conversely, trade openness and foreign direct investments have a supporting impact; (v) the results are robust based on alternative environmental indicator and econometric approach. Consistent with the findings, a set of policy options, such as transforming income growth model into eco-friendly ones by benefitting from clean technologies, putting environmental legislations into effect, and providing interest-free loans, limiting the use of fossil fuel by applying a pollution tax structure to displace fossil fuel with clean sources as well as providing financial incentives or fiscal taxes exempt for clean sources, supporting further trade openness by enabling new free trade agreements, has been discussed for E7 countries.