Environmental challenges and structural drivers of CO2 emissions in least developed countries

Least Developed Countries (LDCs) are on the front line of the climate crisis, despite contributing only marginally to global greenhouse gas emissions—a striking situation that challenges conventional approaches to sustainable development. UNCTAD's concept of productive capacity building is widely recognized as a key lever for promoting economic and social development. However, the environmental implications of expanding productive capacities require careful attention, even though they are not explicitly addressed in UNCTAD's objectives. This study addresses this issue by providing a comprehensive analysis of the multidimensional impacts of productive capacities on CO2 emissions in 40 LDCs over the period 2000–2022. We employ advanced econometric techniques—Feasible Generalized Least Squares (FGLS), Panel-Corrected Standard Errors (PCSE), and Panel EGLS- to address heteroskedasticity, serial correlation, and contemporaneous correlation, complemented by Dumitrescu-Hurlin causality tests. Results reveal pronounced heterogeneity: economic growth, transport infrastructure, ICT, energy consumption, and institutional quality tend to increase emissions, whereas human capital, natural capital, private sector development, and structural transformation reduce them. Causality analysis identifies a unidirectional effect from economic growth to CO2 emissions and bidirectional links between emissions and multiple productive capacity dimensions. By linking productive capacity development to environmental outcomes, this study delivers robust evidence to inform policy design, highlighting actionable pathways for a green structural transformation that builds climate resilience while decoupling economic growth from carbon emissions in LDCs.