Interaction Effect of Economic Aspects on Environmental Quality in G20 Countries

Abstract

Climate change is one of the biggest challenges facing the world today, and carbon dioxide (CO2) emissions have become a major focus of efforts to understand and address the impacts of climate change. World Bank data shows that CO2 emission levels are still volatile, which can create economic uncertainty, especially in energy and environment-related sectors. This study adopts a quantitative approach using secondary data sourced from the World Bank to analyze the effect of several economic factors on CO2 emissions in 19 G20 member countries during the period 2012-2021. The type of data used is panel data which is a combination of time series data and cross section data. The analytical method applied is Generalized Method of Moments (GMM) for dynamic panel data. The results of the two-step GMM analysis reveal the following findings: Foreign Direct Investment (FDI) has a negative relationship with CO2 emissions, indicating that an increase in the value of FDI can result in a decrease in CO2 emissions. Economic growth rate also has a negative impact on CO2 emissions, while urbanization rate has no significant effect. Household consumption has a positive relationship with CO2 emissions, indicating that an increase in household consumption can increase CO2 emissions. Meanwhile, trade balance has no significant impact on CO2 emissions. Significance analysis shows that FDI, economic growth rate, and household consumption have a significant influence on CO2 emissions, while urbanization rate and trade balance are not significant. These results provide insight into the factors contributing to CO2 emissions in G20 countries and can be the basis for sustainable policy development.