Investigating the EKC and LCC hypotheses for BRICS Countries: The role of economic complexity in environmental degradation

Abstract

The number of studies in literature examining the relationship between economic complexity and environment continues to increase. In those studies, either environmental degradation is represented by a limited indicator, or a traditional empirical method is preferred. Motivated by this gap in the literature and considering renewable energy consumption, the present study aims to examine the effect of economic complexity on environmental degradation in BRICS countries during the period between 1992 and 2017 within the scope of load capacity curve (LCC) and environmental Kuznets curve (EKC) hypotheses. Differing from the majority of previous studies, environmental degradation is represented by the load capacity factor, which involves both demand and supply dimensions, and LCC and EKC hypotheses are tested synchronously. Using the novel Method of Moments Quantile regression (MMQR), the results reveal that the LCC and EKC hypotheses are valid across all quantiles in BRICS countries. Moreover, the results show that economic complexity increases environmental quality only in higher quantiles, but renewable energy consumption increases environmental quality in all the quantiles; in other words, they decrease degradation. Given these results, in order to reduce environmental degradation, governments in BRICS countries should promote environment-friendly growth, support the practices increasing the level of economic complexity, and increase renewable energy diversity.