The effect of institutions on clean energy investments and environmental degradation across income groups: Evidence based on the Method of Moments Quantile estimation

This research investigates the effects of institutional quality on environmental degradation using the Method of Moments Quantile Regression estimation. More specifically, it focuses on the impact of institutions on clean energy investments and environmental degradation, both globally and separately, for groups of countries representing various income levels. Unbalanced panel data from 61 nations between 2005 and 2022 were used in the analysis. The results reveal that different aspects of institutional quality are important in encouraging clean energy investments and curbing environmental degradation for different income groups. Political stability is a major driver of clean energy investments in low- and lower-middle-income countries. It is important for upper-middle-income countries to have a rule-based governance structure and an efficient legal system. Additionally, policies promoting sustainability appear to have a rather limited impact across income groups. While the results further suggest that abundant natural resources and openness to trade are major hindrances to clean energy investments and important causes of environmental degradation for the majority of income levels, they also indicate that the estimated effects vary between different levels of clean energy investments and environmental degradation. Moreover, the results support the existence of the Environmental Kuznets Curve for low-income countries.