Effectiveness of Fiscal and Monetary Policies in Promoting Environmental Quality: Evidence from Five Large Emerging Economies

Abstract

Growing climate change concern invites policy responses from all corners. Governments and central banks in emerging market economies pose interests in environmental urgencies. This paper reexamines fiscal and monetary policies' effects on environmental quality in five large emerging economies (Brazil, Russia, India, China, and South Africa) from 1990 to 2018. Effects of population, economic growth, and technology on CO2 emissions are also estimated. According to the Pooled Mean Group-Autoregressive Distributed Lag estimations, Panel Fully Modified Ordinary Least Squares, and Driscoll-Kraay estimations, expansionary fiscal and monetary policies significantly improve environmental quality. Technology also promotes environmental quality. However, economic and population growth degrade the natural environment in the long run. The paper also discusses potential policy implications.