The impact of institutional quality on economic growth and carbon emissions: Evidence from Indonesia, South Korea and Thailand

The main purpose of this paper is to explore the impact of institutional quality on growth-emissions nexus in a panel of three East Asian countries over the period from 1990 to 2016. We also incorporated energy consumption and trade openness as important indicators in the model to avoid variable bias. The results of unit root tests show that the variables are stationary at first difference. The panel cointegration test confirmed that all the variables are cointegrated. We employed Fully Modified Ordinary Least Squares and Dynamic Ordinary Least Squares methods to estimate the long-run effects of explanatory variables on economic growth. The main findings are: (i) a positive significant interaction variable between carbon emission and institutional quality indicates that efficient and impartial domestic institutions are very important to increase economic growth and decrease carbon emissions, simultaneously. (ii) Institutional quality, energy use and trade openness stimulate economic growth. (iii) The VECM granger causality test results show that there is a one-way causality runs from institutional quality to economic growth, carbon emission and energy consumption, from trade openness to carbon emissions in both short-run and long-run, from energy use to trade openness, from energy use to carbon emission in both short-run and long-run. Moreover, feedback effect is present between economic growth and carbon emission, and between economic growth and energy use in both short-run and long-run. It is therefore, necessary to regulate and strengthen the role and effectiveness of local institutions with the aim of lowering carbon emissions in the course of economic development. (C) 2019 Elsevier Ltd. All rights reserved.