Nexus of economic diversification, institutional quality, and co2 emissions: Evidence from emerging economies

Emerging economies are under immense pressure to lessen their emissions of CO2. This study intends to assess the effect of economic diversification on emissions of CO2 empirically. Additionally, the study examines how several aspects of institutional quality—economic, political, and legal—modify the connection between economic diversification and CO2 emissions. The study uses the full economic diversification index data, which includes product, trade, and government revenue diversification indicators, and a sample of emerging economies for the years 2000–2020. The findings posit that economic diversification contributes positively to emissions of CO2 . The results also elucidate that institutional quality plays a significant role in the linkage of CO2 emissions and economic diversification. The interaction between institutional quality indices and economic diversification shows that the mutual effect of these two variables is effective in stimulating CO2 emissions. The empirical outcomes suggest innovative policies for cleaner production. The results suggest the imperative policy recommendations for regulators and policymakers that economic diversification doesn’t undermine carbon emissions but exacerbates them.