Social and economic factors responsible for environmental performance: A global analysis

Several factors influence the environmental performance simultaneously but ethnic fractionalization, political freedom, financial development and institutional quality have a substantial impact to explain the environmental performance across economies. This study focuses to explore that how environmental performance is affected by these economic, political and social indicators by using the annual data of 163 developed and developing countries covering the time period of 1996-2016.The data is collected from World Development Indicators, World Governance Indicators, Freedom House and Cline Centre. The stationarity of variables is analyzed through LLC, IPS and ADF Fisher Chi-square test. Before applying panel ARDL approach to find out the long run relationship among variables, order of integration is determined through Pedroni's cointegration test. The findings of study highlight that ethnic diversity; institutional quality and political freedom play a significant role to decrease CO2emissions while energy consumption, GDP growth and financial development are increasing the environmental degradation. Ethnic diversity is a source of creative and innovative approaches about problem solving of environmental degradation. Political freedom allows people to participate in decision making that posits much compliance with environmental agreements. The foreign direct investment is attracted by good quality institutions which cause to advent of more environment friendly technology along with attractions for further innovations that may helpful to reduce CO2 emissions. Contrary, GDP growth, financial development and energy consumption enhance the industrialization and urbanization leading to increase the level of CO2 emissions. It is suggested for policy makers that cohesion among different ethnic groups; improving institutional quality; providing political freedom to people and inclusive financial sector will acknowledge the less pollutant environment.