Research and development, economic growth, CO2 emissions and environmental Kuznets curve

Abstract

The conflict between attaining economic growth and lowering carbon dioxide (CO2) emissions is a significant barrier to sustainable development. While the Environmental Kuznets Curve (EKC) hypothesis predicts that emissions ultimately drop with economic maturity, the timing and direction of this turning point remain inconsistent across countries. Drawing on insights from the Environmental Kuznets Curve (EKC), this study examines the relationship between economic growth and carbon dioxide (CO2) emissions while considering the contingent effect of investment in research and development (R&D) and how it affects the trajectory and the turning point of CO2 emissions over time. Using panel data from a sample of about 525 observations from 25 emerging markets for the period 2000–2020 and fixed effects, and the difference and system generalised method of moments (GMM) method, we find that R&D investments positively moderate the relationship between economic growth and CO2 emissions at the initial stage and negatively at the later stage of development. The analysis also revealed that investment in research activities reduce the turning point of the EKC, supporting the idea that technological progress can decouple economic growth from environmental degradation. We further find that increasing expenditure on R&D activities does not invalidate the EKC, though it changes the trajectory of pollution over time with economic growth. Energy consumption and FDI increase pollution, while renewable energy use reduces it in the emerging economies analysed. Our findings are robust and consistent with different estimation approaches. Policymakers should prioritise funding for R&D for environmental innovation to alleviate the environmental impact of economic growth, especially in the early stages of development