Institutional Quality and Environmental Deficit: An Insight from BRICS Countries

Abstract

This study examines the impact of institutional quality on the environmental deficit in BRICS countries. In this study, environmental deficit is depicted by the presence of carbon dioxide whereas economic growth (EG), foreign direct investment (FDI), trade openness (TO), urbanization, energy consumption (EC), and institutional quality index are used as explanatory variables. Panel data is used for the period between 1995-2017. The data on all the determinants of carbon emissions is collected from World Development Indicators (WDI) while data on the institutional quality index is collected from Worldwide Governance Indicators (WGI). For the empirical analysis, Auto Regressive Distributive Lag Model (ARDL) and pair-wise Granger Causality test (GC) are used. Further, co-variance analysis is also performed to check the possible correlation among the variables. The results indicate that the environment worsens off in the initial stages of economic growth and once a certain level is attained, it starts to improve. So, the findings validate the Environmental Kuznets curve (EKC) hypothesis in BRICS countries. The results of the Granger Causality test revealed the bidirectional causality from trade openness and foreign direct investment to carbon emissions while no Granger Causality exists between institutional quality and carbon emissions. The study suggests that BRICS countries should focus on sound institutional frameworks to attain high economic growth without deteriorating the environment.