Impact of institutional quality on ecological footprint: New insights from G20 countries

The complex relationship between institutional quality and ecological footprint (ECF) has been verified in prior literature; however, the subject is still inadequately explored and often disregarded to highlight areas where specific policy tensions exist. Therefore, this study aims to delve into the significance of institutional quality on ECF through a limited information maximum likelihood (LIML) panel analysis in the G20 countries from 2000 to 2022. For a precise evaluation, the study innovatively constructs a composite institutional quality index (IQI) and three indices under the accountability, transparency, and participation dimensions. Additionally, the study develops an economic uncertainty predictor to capture the effects of external economic shocks on the subject. The results obtained from the LIML estimation demonstrate that IQI is substantive in reducing ECF in the recipient panel. Further, the findings highlight that all three dimensions of IQI are significant in abating ECF, while the transparency index yields a higher influence on abating ECF. It is also observed that IQI plays an effective role in modulating the relationships between ECF, financial development, human development, growth, and energy consumption, while it is found to be insignificant in reducing the negative effects of globalization on ECF. Finally, the results indicate that IQI is highly influential in eliminating the adverse impact of external shocks on ECF. The results are robust and have specific policy implications.