Achieving carbon neutrality through Economic and Institutional Reforms: Evidence from the Belt and Road Initiative Countries

Abstract

The increasing concern over carbon dioxide emissions necessitates a comprehensive understanding of the factors influencing environmental degradation, particularly in Belt and Road Initiative (BRI) countries. This study investigates the impact of economic, institutional, and environmental variables on carbon emissions using Fixed Effect and dynamic panel models covering the period from 2000 to 2020. The findings reveal that economic freedom has a negative and significant effect on carbon emissions, suggesting that higher levels of economic freedom promote investments in green energy and efficiency, which ultimately reduce emissions. Financial development, however, is consistently shown to positively and significantly increase emissions, indicating that economic expansion, without sustainable practices, exacerbates environmental degradation. Renewable energy consumption demonstrates a significant negative relationship with emissions across models, reinforcing its role in mitigating pollution. Industrial growth is positively correlated with carbon emissions, highlighting the reliance on fossil fuels for production in BRI countries. The robustness check using control of corruption and rule of law confirms the main model results, demonstrating that weak institutional quality exacerbates emissions. The study underscores the importance of strengthening institutional frameworks and promoting renewable energy to reduce carbon emissions in BRI countries. The results have significant policy implications for integrating economic, environmental, and institutional reforms to achieve sustainable development.