Impact of good governance and natural resource rent on economic and environmental sustainability: an empirical analysis for South Asian economies

Abstract

Good governance and natural resource rent are important pillars of sustainable development. The paper explores the role of governance and natural resource rent in enlightening the economic, social, and environmental sustainability. To achieve this objective, panel data for six selected South Asian countries from 1996 to 2020 is used. The second-generation unit-root test of Pesaran and panel unit root test of structural break proposed by Karavias and Tzavalis (Computat Stat Data Anal 76: 391–407, Karavias and Tzavalis, Comput Stat Data Anal 76:391–407, 2014) are utilized to examine the stationarity of variables and results confirm that variables are stationary at first difference. We used the first-generation cointegration test, i.e., Pedroni (1999), Kao (1999), and (Westerlund, Oxford Bull Econ Stat 69:709–748, 2007) and second-generation cointegration given by (Westerlund and Edgerton, Oxford Bull Econ Stat 70:665–704, 2008) test to confirm the co-integration and make long-run analysis by using fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) models. For robustness we also estimated cross-sectionally augmented autoregressive distributed lag model which is important to deal with heterogeneous slope coefficients and unobserved common factor. To check whether the residuals of the model were cross-sectionally dependent or not, we used Breusch and Pagan (1980) and Pesaran (2004) tests and confirmed the heterogeneity among sample countries by using (Pesaran and Yamagata, J Econometr 142:50–93, 2008) homogeneity test. The coefficients of long run analysis conclude that governance improves the environment by reducing greenhouse gas emissions (GGE) and is positively and significantly related to growth and social sector. Moreover, gross domestic product and trade openness are positively related to economic and social effect, whereas natural resources rent has a positive association with GGE. But the results confirm that with good governance, the natural resource rent can decrease greenhouse gas emissions. The recommendations of the study for policy purposes focus on that the governance will reduce GGE emissions and increase social and economic development and the countries should use more environment-friendly sources.