Environmental Policy Stringency and Sustainable Development of OECD Countries: Moderating Role of Institutional Quality

Abstract

With every passing day, policymakers are bringing strict environmental regulations with an aim to promote sustainable development in response to increasing worries about climate change, pollution, and resource scarcity. The overarching aim of this study is to examine the complex relation between stringent environmental policies and sustainable development, with the moderating role of institutions. The panel data from 1990 to 2022 of 33 OECD countries were employed using advanced econometric techniques, including panel quantile regression and GLS regression. The results indicate that the strict environmental regulations have a beneficial effect on sustainable development, particularly in the middle and upper quantiles, where institutional quality plays a critical role in reinforcing the positive relationship. In contrast, at lower levels of sustainable development, the benefits of stringent regulations are less pronounced, which suggests that weaker institutional frameworks may hinder their effectiveness. This study finds that other variables, such as technological advancements, economic growth, foreign direct investment, and population density, also play a pivotal role in attaining sustainable development objectives. The study is very important because it provides policymakers, researchers, regulators, and other stakeholders with invaluable information to formulate and implement sound environmental policies that can promote sustainable development without posing risks to economic growth. The analyses of the variables that impact sustainable development in OECD countries in their entirety provide grounds on which the development of evidence-based measures can be established. In addition, international organizations, governments and NGOs can use the findings of this research in determining their course and compare their level of success with OECD countries.