The Effect of Real GDP Per Capita, Eco-Innovation, Solar Energy, and Foreign Direct Investment on CO₂ Emissions in G-20 Countries

Abstract

This study investigates the interplay between real GDP per capita, solar energy, foreign direct investment (FDI), and eco-innovation on carbon emissions (CO₂) within G20 nations. It aims to understand how economic development and financial liberalization influence environmental outcomes, a critical issue for policy formulation amid global climate commitments. The research employs a quantitative approach using panel data for 19 G20 countries from 2000 to 2022. Analysis utilizes panel data regression (Fixed and Random Effects), Autoregressive Distributed Lag–Pooled Mean Group (ARDL-PMG) and ARDL-Mean Group (ARDL-MG) models for dynamic analysis, and multivariate polynomial regression to capture non-linear relationships, particularly the Environmental Kuznets Curve (EKC). Real GDP per capita has a significant positive impact on CO₂ emissions in the aggregate G20 model, indicating economic growth remains a primary emissions driver. However, country-group analysis reveals distinct patterns: developed G20 nations exhibit a long-run negative relationship between GDP per capita and emissions, validating the EKC hypothesis, while developing nations show a consistently positive relationship. Renewable energy consumption consistently reduces emissions across all groups. Eco-innovation and FDI show complex, non-linear effects, often increasing emissions in the short run but demonstrating potential for long-term reductions. This research integrates economic variables and renewable energy usage with environmental outcomes within a unified framework for the heterogeneous G20 bloc. It provides a comparative analysis between developed and developing economies, moving beyond aggregate results to offer nuanced insights. The study underscores the necessity of coupling economic growth strategies with robust environmental regulations. It highlights renewable energy as an immediate tool for emission reduction and suggests that the environmental benefits of eco-innovation and FDI depend on supportive policies and long-term investment in green technologies.