Sustainable Development, Foreign Investment, Economic Complexity, and Financial Freedom as Determinants of the Carbon Footprint in Next Eleven Economies

ABSTRACT Global climate change and mounting pressure from environmental degradation necessitate a multidimensional examination of the determinants of the carbon footprint in rapidly growing economies. This article analyses the long‐term effects of the sustainable development index, foreign direct investment, the economic complexity index, and financial freedom on the carbon footprint within the context of the Next Eleven (N‐11) countries. Taking data availability into account, data for the period 1995–2022 were used for nine N‐11 countries. In the methodological process, tests for cross‐sectional dependence, homogeneity, and multicollinearity were first applied, followed by the CADF unit root test, and the Durbin–Hausman cointegration test. Long‐run coefficients were obtained using the DOLSMG and CupFM estimators. According to the estimation results from both DOLSMG and CupFM, the findings indicate that, across the panel, the sustainable development index, and foreign direct investment reduce the carbon footprint, whilst the economic complexity index, and financial freedom increase it. Country‐level results reveal that these effects vary significantly across the N‐11 countries. Consequently, carbon reduction policies should be designed not through a one‐size‐fits‐all approach, but by taking into account each country's production structure, energy mix, investment profile, and level of financial liberalization.