Does Policy Capacity Influence Environmental Policy Outcomes in Developing Countries?

ABSTRACT Empirical evidence on the impact of policy capacity on environmental policy outcomes remains limited in developing countries. This study addresses this gap by proposing a governance‐based policy capacity measure, using the World Governance Indicators, that captures the governance and institutional conditions associated with policy capacity development and mobilization at the organizational and systemic levels. The impact of governance‐based policy capacity on environmental policy outcomes is analyzed for a panel of one hundred and fourteen developing countries from 1996 to 2022. The empirical findings show a significant negative impact of governance‐based policy capacity on environmental policy outcomes, estimated using a fixed‐effects model with Panel‐Corrected Standard Errors (PCSE). The negative relationship is consistent across the sub‐dimensions of both the environmental policy outcome index, which includes environmental health, ecosystem vitality, and climate change, and the governance‐based policy capacity index, which comprises governance‐based analytical, operational, and political capacity. The results support the emerging argument that strong governance policy capacity may coexist with weak environmental outcomes when economic and political interests are prioritized over environmental protection. The interaction analysis conducted with natural resource rents, civil rights, and the quality of deliberative democracy supports this argument. It is further revealed that civil rights and quality of deliberative democracy strengthen the negative relationship between governance‐based policy capacity and environmental policy outcomes. In contrast, an increase in natural resource rents diminishes the influence of governance‐based policy capacity on environmental policy outcomes. Overall, the findings lay the groundwork for policymakers to move beyond capacity‐building interventions toward aligning capacities with clear environmental policy objectives to achieve successful outcomes.