The Moderating Role of Government Effectiveness on The Relationship Between Trade Openness, Foreign Direct Investment and Economic Growth with Environmental Degradation in South Asia

This comparative study is going to examine the relationship between trade openness, foreign direct investment, economic growth and environmental degradation in South Asia with the moderating role of government effectiveness. For this purpose, panel data from 1996 to 2023 has been analyzed for South Asian countries. The study used government effectiveness as moderator on the relationship between trade openness, foreign direct investment, economic growth and environmental degradation The study firstly, unit root tests were performed to check and address the non-stationary problem of the data. The model of the study is about the Moderating Role of Government Effectiveness on the Relationship between Trade Openness, foreign direct investment and Economic Growth with Environmental Degradation. In the model, along with trade openness, foreign direct investment and economic growth, the study utilized control variables such as energy consumption, energy price and population growth and moderator are Government Effectiveness. According to the findings, with the moderating role of government effectiveness, trade openness has negative effect on environment. It implies that effective role of government will reduced environmental degradation as trade openness increase. Stronger institutions enable governments to enact laws that restrict pollution, promote environmentally friendly behavior, and lessen the detrimental effects of trade on the environment. Further, the study also finds that, with the moderating role of government effectiveness, foreign direct investment also has negative effect on environment. It implies that effective role of government will reduced environmental degradation as foreign direct investment increase. Moreover, with the moderating role of government effectiveness, economic growth also has negative effect on environment. It implies that effective role of government will reduced environmental degradation as economic growth increase. Furthermore, the study also applied Pooled Mean Group Autoregressive Distributed Lag (PMG-ARDL) method for the empirical findings. The empirical findings of this method confirm the findings of Fixed Effects Regression Analysis in the long run. To evaluate the consistency and dependability of the findings the study applied Panel DOLS, Panel FMOLS and Panel Two-Stage EGLS Method in response to robustness check. The findings of these methods confirm that, the findings of Fixed Effects Regression Analysis and PMG-ARDL are robust, reliable and consistent. So, with the moderating role of government effectiveness, the effects of trade openness, foreign direct investment and economic growth on environment is negative and statically significant. In ensure that, effective role of government will reduce environmental degradation as trade openness, foreign direct investment and economic growth increase.