Modelling the environmental pollution-institutional quality nexus in low- and middle-income countries: exploring the role of financial development and educational level

This study examines the effects of economic growth, economic freedom, institutional quality, tertiary education level and financial development on environment pollution levels in 74 low- and middle-income countries (LMICs) through 1996–2018. We employ panel-data techniques such as Westerlund’s cointegration test, quantile regression and system generalized methods of moments to investigate the relationship among the variables. The findings of the study suggest that the emission levels in the developing countries rise with the increase in the economic growth and freedom, higher education levels and sound financial development. Moreover, with a 1% increase in institutional quality, the level of pollution is seen to decrease by 0.9–4.6% in these countries. Similarly, a 1% rise in economic freedom is associated with 0.18–0.4% increase in pollution levels in the countries under consideration. The empirical findings can be broadly explained by the pollution-haven hypothesis and do not stand in conformation with the Environment Kuznets Curve hypothesis. Hence, stringent environmental regulations, along with encouragement for the production of cleaner technologies, and suitable information dissemination, would be instrumental in the LMICs to abate pollution. The government authorities worldwide do not just need to spend more, on education; they need to spend better and efficiently, ensuring that allocation of resources is effective and equitable.