The relationship between economic diversification and carbon emissions in developing countries

Abstract

In the past two decades, ASEAN countries have witnessed a rapid rise in air pollution, and environmental degradation has become a severe problem in this region. This is because manufacturing, machinery, chemicals, and allied industries are the main economic sectors on which developing nations in the ASEAN-5 area have concentrated their efforts. However, these are significant sources of greenhouse gas emissions. In response, each of the ASEAN-5 nations has pledged to reduce its carbon emissions. Additionally, one of the crucial challenges that these nations face is the choice and modification of product structure. This study was conducted to analyze the impact of economic diversification, income per capita, foreign direct investment, and electricity consumption on carbon emissions in developing ASEAN-5 nations (Vietnam, Thailand, Indonesia, Malaysia, and the Philippines) from 1986 to 2019. By adopting the pooled mean group approach, the empirical results showed that economic diversification reduces CO₂ emissions while its square has the opposite effect. Electricity consumption positively influences carbon emissions in the long run, while economic growth drives environmental degradation both in the short and long run. Based on the findings, it can be recommended that ASEAN-5 governments increase economic diversification and reduce non-renewable energy consumption to promote sustainable development and environmental protection.