Economic complexity and environmental degradation: Evidence from OECD countries

We augment the existing knowledge on the role of economic complexity in the environment and sustainable development debate by examining the effect of economic complexity on environmental degradation (measured by ecological footprint, CO2 emissions, N2O emissions and greenhouse gas emissions) contingent on income, using data from 35 OECD countries between 1998 and 2017. With the fixed effects model estimator, we find that income facilitates economic complexity to mitigate ecological footprint, CO2 emissions, N2O emissions and greenhouse gas emissions. Also, we fit a partial linear functional-coefficient model to find that income influences economic complexity to exert a nonlinear effect on ecological footprint, CO2 emissions, N2O emissions and greenhouse gas emissions. We find that economic complexity leads to an increase in ecological footprint, CO2 emissions, N2O emissions and greenhouse gas emissions at lower income levels but gradually dampens them as income rises. Finally, by applying the Method of Moments Quantile regression to control for distributional heterogeneity, we also find that the mitigating effect of economic complexity on ecological footprint, CO2 emissions, N2O emissions and greenhouse gas emissions is transmitted through income across quantiles. The policy implications are discussed.

Automated summary

This study further expands the existing knowledge on the role of economic complexity in the environment and sustainable development debate by examining its effect on environmental degradation. The results show that income facilitates economic complexity in mitigating ecological footprint, CO2 emissions, N2O emissions, and greenhouse gas emissions. The study also finds a nonlinear relationship between income and the impact of economic complexity on environmental degradation, indicating that economic complexity initially increases these environmental indicators but gradually reduces them as income rises.