Does governance contribute to the public spending - CO2 emissions nexus in developing economies? Policy lessons for sustainable development

Abstract

Global climate change due to increasing CO 2 emissions threatens the development and survival of many countries, especially those on the coast. Intentional government spending by sectors can lower CO 2 emissions to help these countries in sustainable development. Meanwhile, governance has some importance in enabling governments to achieve their economic development goals. Does governance affect the public spending – CO 2 emissions nexus in developing economies? The paper seeks answers by employing the system GMM Arellano-Bond estimators to assess the impact of public spending, governance/institutional quality, and their interaction on CO 2 emissions for a sample of 109 developing economies between 2002 and 2021. The results seem counter-intuitive that public spending reduces and governance increases CO 2 emissions, while their interaction lowers them. Furthermore, private investment and economic growth promote CO 2 emissions, while trade openness decreases them. The findings in this paper provide some policy lessons for governments of developing economies to protect environment.