Can institutions decouple growth from emissions? Distributional effects of human capital development and innovation on emissions in developing economies

Purpose Carbon-intensive growth in developing economies raises concerns about whether human capital development alone can meet climate targets. This study examines the mediating role of institutional quality in the relationship between human capital and research (HCR), business sophistication (BS), creative output (CO), and total greenhouse gas emissions (THE). Design/methodology/approach Using an augmented STIRPAT model with panel data from 91 developing countries (2011–2022), the study incorporates indicators from the World Development Indicators (WDI) and the Global Innovation Index. The analysis accounts for cross-sectional dependence and employs the CIPS unit root test and Westerlund cointegration test. Estimation techniques include Driscoll–Kraay standard errors, Method of Moments Quantile Regression, and Sobel mediation analysis. Findings Human capital and research contribute to higher emissions, especially in high-emitting economies. Meaning skills and knowledge currently support carbon-intensive growth. Business sophistication reduces emissions in less industrialised countries but raises them where production is already energy-intensive. Also, creative output has a modest effect in high-emission countries. Institutions consistently reduce emissions at all quantiles. The mediation analyses revealed that institutions counteract the environmental costs of business sophistication, underscoring their importance in directing innovation toward cleaner outcomes. The findings suggest that green skills development and business innovation must be aligned with institutional reforms to effectively decouple growth from carbon emissions, thereby advancing SDGs 4, 9, 12, and 13 across the Global South. Originality/value The study explores three different facets of human capital and highlights the distributional and mediating effects of innovation-related variables, positioning governance as the pivotal factor in greening economic upgrading. Theoretically, it extends the STIRPAT framework and Ecological Modernisation Theory (EMT). The study demonstrates that sustainability gains specifically from a creative and knowledge-based economy is institution-contingent and heterogeneously distributed across economies. It is recommended that policy interventions should prioritise investments in creative hubs that drive local ecological innovations, promote sustainable media ecosystems, and empower community-led technological solutions. Also, where digital industries and consumption are high, export credit guarantees and intellectual property protections could support the growth of low-emission creative sectors. These strategies align with the consistent positive impact of creative output on sustainability observed across all levels of analysis.