BRICS and the climate challenge: navigating the role of factor productivity and institutional quality in CO2 emissions

Abstract

The BRICS countries are important contributors to global efforts aimed at preventing a climate catastrophe. These countries account for half of the total emissions generated by the G20 nations. In this context, this paper examines the relationship between total factor productivity (TFP) and CO₂ emissions (CE) in BRICS countries from 1996 to 2022, with institutional quality serving as a moderating factor. Moreover, a diverse range of methodologies was employed to address the problem of cross-sectional dependence; i.e., the CS-ARDL technique is used to analyze the relationship between variables in both the long and short-run. The AMG and CCEMG methods are employed for robustness analysis, while the Dumitrescu-Hurlin causality test is used to assess causality. Our empirical analysis demonstrates that TFP is positively associated with CE. Conversely, we find that institutional quality has a negative impact on CE. Furthermore, the study confirms that the interaction between TFP and institutional quality has a negative effect on CE. This implies that an improvement in institutional quality leads to a decrease in CE, as it strengthens the regulatory system governing CE and reduces pollution. Environmental policy must include economic flexibility and policy unpredictability in order to meet CO₂ reduction targets. In addition, the study has identified bidirectional causal links between CE and variables such as TFP, institutional quality, and other control variables. According to our study, the BRICS countries should encourage digitalization and renewable energy production while preserving a reasonable standard of institutional quality since they have significant resource advantages in the renewable energy sector.

Keywords: BRICS countries; CO2 emissions; Institutional quality; TFP.