Shaping sustainable futures: How economic policies and government effectiveness drive environmental sustainability in emerging economies

Studying global environmental concerns is essential to understand the challenges posed by climate change. It equips individuals and policy makers with the knowledge to develop sustainable solutions and promote responsible behavior. Against this backdrop, we evaluated the role of economic policies (monetary policy and fiscal policy), government effectiveness, per capita gross domestic product, urbanization, alternative energy technology use, and access to energy within the extended IPAT model to sustain economic development and environmental quality across seven emerging economies. Fully Modified Ordinary Least Square, Driscoll-Kraay Standard Errors, Panel Corrected Standard Errors and co-integration tests were applied to extract the outcomes for the period from 2001 to 2022. Our results concluded that at individual levels and in an interaction with government effectiveness, the outcomes of economic policies are mixed. Where, real interest rate and tax revenue, individually ensure environmental sustainability but deteriorate environmental quality in the presence of government effectiveness. Money supply and government expenditure both individually and in interaction with government effectiveness discourage environmental quality in E-7 economies. the individual role of government effectiveness shows that the government of E-7 economies are inefficient in curtailing carbon emission to ensure sustainable environment. Technological progress and urbanization contribute to ensure environment quality while increased energy access, and per capita gross domestic product degrade environmental sustainability. Moreover, bidirectional causality runs money supply and government expenditure to carbon emissions, while unidirectional causality is found between government effectiveness and CO₂ emissions. However, no causality is found between real interest rate and carbon emissions. Policymakers are needed to integrate environmental regulations into economic policies to ensure government effectiveness improve, rather than undermines, their carbon-reducing potential. Moreover, tax revenue and interest rates need targeted framework to maintain their benefits even as government effectiveness of the E-7 economies improves.