Political Economy of Environmental Poverty: The Role of Political Risk and Income Level

Environmental poverty is a global concern for developed and developing economies, particularly in light of sustainable development goals. Unlike previous research, this study evaluates the role of political risk index and income level on environmental poverty in developed regions, namely, OECD economies in the period 2004-2022. We also examine the role of renewable energy consumption. We initially developed a multidimensional index for assessing weighted average environmental poverty alongside a novel index to gauge political risk within OECD economies. We employ several panel econometric procedures, including cross-sectional dependence and slope heterogeneity, CIPS unit root circle for identifying unit roots and Westerlund cointegration for long-run connection among variables. Besides, the study employed cross-sectional autoregressive distributive lags (CS-ARDL) to identify the short-run and long-run impact of explanatory variables on environmental poverty. The results show that variables are heterogenous and cross-sectionally dependent. Moreover, the unit roots are found within the unit root circle, implying that variables are static at the first difference and long-run equilibrium exists among variables. The empirical results confirm that the political risk index reduces environmental poverty. A one-percent increase in the betterment of the political risk index lowers environmental poverty by -0.022% and -0.034%, respectively. However, the results for PRI in the short run are inconclusive while effective in the long run. Since the OECD countries have lower political risk and effective PRI, economic and financial activities spur, which leads to the positive influence of income on environmental poverty. A one-percent increase in income level (GDP) increases environmental poverty in OECD countries by 1.21% and 1.34% in the short and long run. Conversely, the results for renewable energy consumption (REC) are negative in both the short and long run and we conclude that REC significantly reduces environmental poverty in the region. Besides, the robustness analysis employed through an augmented mean group (AMG) estimator is reported to have similar and robust results. The Dumitrescu-Hurlin panel causality test reports that REC and environmental poverty (ENVP) have bidirectional causal linkage and provide feedback to each other, while GDP and PRI have a unidirectional connection and no feedback effect is found. Relevant policies are inferred from the conclusions.