Drivers of Ecological Quality: Do Environmental Policy Stringency and Urbanization Play a Role

Abstract

As the world navigates the crossroads of economic ambition and environmental survival, understanding how environmental policy stringency, economic globalization, and financial development shape the environment's demand and supply sides is more urgent than ever. Thus, this study examined the drivers of ecological quality (proxied by load capacity factor). The study uses data spanning from 1990Q1 to 2022Q4. In doing so, the study employed the recently introduced modified cross quantile regression. This approach depicts how different quantiles of one variable affect various quantiles of another, revealing asymmetric, tail-dependent, and nonlinear relationships that traditional methods often miss. The study also employed modified quantile regression and average modified cross quantile regression as a robustness check. The results from the quantile analysis shows that in the U.S., environmental policy stringency, globalisation, and growth improve ecological quality mainly, where ecological capacity is high, while financial development and urbanisation reduced ecological quality. The study proposed policies based on these findings.