Environmental Sustainability and Regulatory Quality in Emerging Economies: Empirical Evidence from Eastern European Region

Recent academic and political interest has increased in the capability of regulatory quality to facilitate realization of environmental sustainability goals. This surge in interest in regulatory interventions relates to questions of whether regulatory deterrence is effective or are better alternatives to state regulations. This study investigates relationships between environmental sustainability and regulatory quality for a cross-section of Eastern European economies between 1998Q4 and 2017Q4 using advanced feasible generalized least square (FGLS) panel cointegration, Common Correlated Effects Mean Group (CCEMG), and Dumitrescu Hurlin panel causality estimation approaches. The outcomes indicate there are cointegrating relationships between regulatory quality and environmental sustainability. Instructively, we find that countries with strong regulations have improved environmental quality controlling unsustainable growth and fossil energy consumption. The Dumitrescu Hurlin panel causality check indicates bidirectional causality between ecological footprint and carbon dioxide emissions in the region. Additionally, there is unidirectional causality running (i) from CO2 emissions to regulatory quality and (ii) from gross per capital income to both regulatory quality and carbon dioxide emissions. For policymakers, it is important to reinforce stringent regulations as the economies begin to grow and consume more energy, which is considered a major cause of climate change and global warming. Similar strict environmental regulations are needed to ensure corporations are made accountable for their actions.