Economic freedom and carbon emissions across the globe: the mediating effect of renewable energy consumption.

A growing number of studies have examined the extent to which economic liberalization policies would influence carbon emissions. These studies have examined this relationship while neglecting the key role that renewable energy could play in this complex relationship. The study fills that gap. It aims to examine the mediated effect of renewable energy consumption in the relationship between economic freedom and carbon emissions in 138 countries worldwide over the period 1995-2018. In this perspective, the study followed a second-generation panel econometric tests. We used Driscoll and Kraay standard errors (DKSE) and common correlated effect mean group (CCEMG) estimators for baseline results. The robustness of the results was checked using fully modified ordinary least squares (FMOLS), system generalized method of moments (System-GMM), and quantile regression (QREG). Furthermore, the study mobilized Dumitrescu and Hurlin's panel causality test to examine the causal relationship between the variables under study. The results suggest that economic freedom has a direct and indirect negative effect on carbon emissions and that renewable energy consumption mediates the effect of economic freedom on carbon emissions. These results remained unchanged at the battery of robustness checks. Moreover, Dumitrescu and Hurlin's panel causality test results indicated a bidirectional causal relationship between economic freedom, renewable energy consumption, economic growth, economic globalization, and population size with carbon emissions. The various empirical findings have helped to formulate useful policy implications for policy-makers to ensure environmental sustainability.
(© 2023. The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.)