Institutional Effectiveness and the Structural Determinants of Environmental Efficiency in South Asian Economies

This study investigates the moderating role of government effectiveness in the relationship between urbanization, renewable energy adoption, and environmental efficiency in South Asia over the period 1996–2023. Using a dynamic panel life-cycle framework and advanced long-run estimators (FMOLS, DOLS, CCR) complemented by robust corrections for cross-sectional dependence and heteroskedasticity, the analysis reveals that economic growth and trade expansion increase environmental pressures, while renewable energy deployment, industrial modernization, and effective governance significantly reduce CO2 emissions. Notably, the interaction between renewable energy and government effectiveness demonstrates that institutional quality amplifies the mitigation impact of clean energy policies. These findings highlight that environmental outcomes are structurally and institutionally conditioned, emphasizing the importance of governance-contingent strategies for achieving sustainable urbanization and low-carbon development. The study contributes to the literature by integrating governance as a moderating mechanism in the urbanization–environment nexus and providing policy-relevant evidence for sustainability interventions in the region.