Does Governance moderate the impact of globalization on CO2 emissions? Evidence from Threshold Effects of Government Effectiveness

Globalization remains one of the defining features of the modern era, driving economic integration, technological diffusion, and cross-border interdependence. At the same time, environmental degradation has emerged as a universal challenge confronting government worldwide. Understanding how these two forces interact is vital for designing governance strategies that ensure sustainable and inclusive growth. This research paper focuses on the connection between globalization and the carbon dioxide (CO 2) emissions, where the effectiveness of the government acts as an intervening variable. The analysis is based on the use of fixed-effects, interaction, threshold, and instrumental variable methods using an unbalanced panel of up to 120 countries during the period 2003–2024 to deal with heterogeneity, nonlinearity and the possibility of endogeneity. According to the findings, globalization has been linked to increase in the amount of CO 2 emissions among the countries, but the intensity of this effect differs with the quality of institutions. The effect of globalization on emissions is strongly moderated by the effectiveness of the government, but it is not reversed. The threshold and marginal effects indicate to the fact that the relationship between globalization and emissions is positive even in the institutional regimes though the relationship is weaker in the regimes with a high level of governance quality. Such results indicate the relevance of institutional capability in averting the environmental impact of economic integration. The effect of globalization is to raise the emissions, but the effect diminishes with greater effectiveness of the government. By pinpointing the governance tipping point at which openness becomes environmentally beneficial, this study enriches the globalization–environment literature and offers valuable policy guidance for strengthening institutions, fostering green innovation, and advancing low-carbon development.