Building a Sustainable Environment in Eu Countries: the Critical Role of Infrastructure Investments and Institutional Quality

Abstract

The literature on the intersection of environment and economic growth is extensive, and emerging research emphasizes additional variables that affect both domains. It is well known that institutional quality enhances environmental quality because institutions affect environmental quality and economic growth through regulatory policies. Moreover, infrastructure investment is a critical driver of growth and environmental improvement, providing the necessary foundation for change. This research contributes to the literature by examining the dynamic interaction between ecological footprint, infrastructure investment, institutional quality, and economic growth using the Environmental Kuznets Curve hypothesis for the 10 European Union countries with the highest levels of infrastructure investment from 1996 to 2020 to highlight how infrastructure and institutional quality affect environmental outcomes differently across countries. It finds long-run relationships among the variables in the Czech Republic, Finland, France, Germany, Hungary, Italy, Norway, Slovakia, Sweden, and Switzerland. The findings confirm the cointegration by confirming the EKC hypothesis for the panel and particularly for Finland, France, Norway, Slovakia, and Sweden. The study observes that increased infrastructure investments reduce the ecological footprint in Germany and Sweden but increase the ecological footprint in the Czech Republic and France. In Sweden, higher institutional quality significantly reduces the ecological footprint, suggesting that improvements in institutional quality are associated with a lower ecological footprint. These results provide a new perspective on the policy revisions required to achieve net zero emissions under the Paris Climate Agreement, emphasizing the need to integrate green finance into privately financed infrastructure projects.