Exploring the dynamic effects of shocks in monetary and fiscal policies on the environment of developing economies: evidence from the CS-ARDL approach

• Published in: Environmental science and pollution research international 2022-06, Vol.29 (30), p.45665-45682
• Main Authors: Noureen, Shaista, Iqbal, Javed, Chishti, Muhammad Zubair
• Format: Article
• Language: English
• Subjects: Aquatic Pollution; Atmospheric Protection/Air Quality Control/Air Pollution; Carbon dioxide; Developing countries; Earth and Environmental Science; Economic development; Economic growth; Ecotoxicology; Emissions; Energy consumption; Energy policy; Environment; Environmental assessment; Environmental Chemistry; Environmental Health; Environmental quality; Environmental science; Fiscal policy; Fossil fuels; GDP; Green development; Greenhouse effect; Greenhouse gases; Gross Domestic Product; LDCs; Literature reviews; Macroeconomics; Methane; Monetary policy; Nitrous oxide; Quality assessment; Renewable energy; Renewable resources; Research Article; Sustainable development; Waste Water Technology; Water Management; Water Pollution Control
• ISSN: 0944-1344; 1614-7499
• DOI: 10.1007/s11356-022-19095-0

The literature review of ample body indicates that the majority of the studies rely on a single proxy, while exploring the determinants of environmental quality, that can produce misleading results. To subdue this exigency, the current study extends the literature by deploying three proxies (carbon dioxide, methane, and nitrous oxide emissions) for assessing the environmental quality. In this context, the current study links macroeconomic policies, economic growth, fossil fuel consumption, and renewable energy consumption with the environmental quality for selected developing countries from 1990 to 2017. The Westerlund cointegration test confirms the long-run association among the variables. The advanced econometric technique reveals the following findings. First, the expansionary monetary and fiscal policies degrade the environmental quality by escalating the ratio of carbon dioxide, methane and nitrous oxide. However, the contractionary fiscal and monetary policies serve as an effective measure to mitigate the detrimental effects of greenhouse gases. Third, gross domestic product and fossil fuels exhibit a positive association with pollution. Fourth, renewable energy enhances the atmospheric quality by disrupting carbon dioxide, methane, and nitrous oxide emissions. The Granger causality test is also employed to confirm the causal relationship between the variables. Based on the results, we claim that macroeconomic policies are highly sensitive to environmental quality; therefore, some important policies are suggested to attain sustainable and green development.