Does government effectiveness reduce the carbon-emitting effect of urbanization? A worldwide study

Purpose This study investigates whether and to what extent government effectiveness moderates the relationship between urbanization and CO2 emissions worldwide. Understanding how governance can mitigate urbanization’s environmental impacts is increasingly critical given the urgency of global climate goals. Design/methodology/approach Using annual data for 84 economies over the 2002–2022 period, we employ both a static fixed-effects and a dynamic system generalized method of moments (GMM) modeling approach. Our models test the direct impact of urban population growth on CO2 emissions and the moderating effect of government effectiveness while controlling for key economic and financial variables such as foreign direct investment, GDP per capita growth, domestic private credit and export growth. Findings Fixed-effects results indicate that urbanization significantly raises CO2 emissions, especially at the early stages, while direct effects of government effectiveness on emissions are statistically weak. Dynamic GMM results reveal a strong persistence in emissions over time. More crucially, government effectiveness positively moderates the urbanization–emissions relationship, reducing emissions associated with urban growth. These moderating effects are strongest in developing economies, where improved governance frameworks help curb rapid urban expansion’s environmental burdens. By contrast, in developed nations, improved governance still matters but appears to have already been largely institutionalized, making its incremental moderating role less pronounced. Originality/value This study extends the literature by explicitly modeling government effectiveness, an underexplored dimension of institutional quality, as a mitigating factor in the urbanization–emissions nexus. We show that the strength of governance systems can reduce the negative externalities of urban growth, offering actionable insights for policymakers seeking to harmonize economic expansion, urban development and environmental sustainability.