Linking governance with environmental quality: a global perspective

Sustainable environmental quality is a global concern, and a concrete remedy to overcome this challenge is a policy priority. Therefore, this study delves into the subject and examines the effects of governance on environmental quality in 180 countries from 1999 to 2021. To maintain comparability and precision, we first classify countries into full and income-level panels and then, innovatively, construct a composite governance index (CGI) to capture the extensive effects of governance on CO(2) emissions. Complementing the stationarity properties of the variables, we employ the cross-sectionally augmented autoregressive distributed lags model to analyze the data. Our survey yields four key findings. First, a long-run nexus between CGI, CO(2) emissions, and other control variables is confirmed. Second, the findings indicate that CGI is crucial to improving environmental quality by reducing CO(2) emissions across all panels. Third, we find that while CGI maintains a similar magnitude, the size of its effects substantially varies according to the income level of the underlying countries. Fourth, the findings reveal that energy consumption, population growth rate, trade openness, and urbanization contribute to environmental degradation, while financial development and the human development index are significant in reducing CO(2) emissions. Our findings suggest specific policy implications, summing up that one common policy is not a good fit for all environmental quality measures.