Human capital, economic complexity, and ecological footprints: Crafting a sustainable development policy framework for E7 nations

Abstract

AbstractClimate change is one of the most pressing challenges of our time, with far‐reaching implications for ecosystems, economies, and societies worldwide. Human capital (HUC) and economic complexity (ECC) “understood as structural transformation toward more sophisticated and knowledge‐based production” can be pivotal in curtailing ecological degradation. In this context, the study explores the intricate relationship between HUC, financial development, financial globalization, gross domestic product, ECC, and ecological footprints from 1995 to 2021. To achieve this objective, advanced econometric estimation methods are employed. The results indicate the presence of cross‐sectional dependence and slope heterogeneity in the dataset. The variables present a mixed order of stationarity, while the Westerlund test indicates the presence of a long‐run equilibrium association. The results from the Method of Moments Quantile regression indicate that ECC posed a positive but insignificant effect in the lower quantile (τ = 0.1–0.25), while negative and significant in the middle (τ = 0.50) and upper quantiles (τ = 0.75–0.90). Moreover, financial globalization negatively and significantly affects ecological footprints through all the quantiles except the lower quantile (τ = 0.1). Financial development, gross domestic product, and HUC enhance environmental degradation by escalating ecological footprints. Based on the results, the study suggested enhancing the ECC and financial globalization, while sustainable utilization of HUC and strict regulations for the financial sector to foster sustainable development in E7 countries.