Does the modifying role of institutional quality remains homogeneous in GDP-CO2 emission nexus? New evidence from ARDL approach.

This study presents a country-specific analysis for three developing countries (Pakistan, India, and Bangladesh) to determine the interaction effect of institutional quality and economic growth along with other control variables (foreign direct investment and renewable energy) on CO2 emissions. This research uses an auto regressive distributed lag (ARDL) model for quarterly data ranging from 1996Q1 to 2016Q4. The findings show that the interaction cause of economic growth and institutional quality on CO2 emissions is not homogeneous in developing countries. In India and Bangladesh, the modifying role of institutional quality is evident to reducing CO2 emissions but in Pakistan, this interacting effect increases CO2 emissions. The findings confirm an inverted U-shaped EKC in Pakistan and Bangladesh but not significant in India. The independent role of GDP and institutional quality significantly reduces CO2 emissions in Pakistan and Bangladesh.