Economic freedom and corporate carbon emissions: International evidence

Abstract

AbstractA global consensus exists emphasizing the need to curtail carbon emissions to preserve the environment and promote sustainable development. In this study, we investigate the impact of economic freedom on corporate carbon emissions. We show that economic freedom negatively impacts corporate carbon emissions based on a panel dataset of 2,932 companies from 24 countries between 2004 and 2019. We also identify the underlying mechanisms involving resource utilization and industrial agglomeration. Additionally, we provide compelling evidence that carbon emissions reduction also boosts future economic performance. We also find that the effect of economic freedom on corporate carbon emissions is evident in companies facing elevated financial distress risks, high tax burdens, low financing constraints, and where the CEO serves on the board of directors. Moreover, we find that the escalation in economic freedom exhibits a notably stronger restraining effect on corporate carbon emissions in developed countries relative to developing nations. Overall, our findings contribute to a robust theoretical framework and provide valuable policy insights for the global effort to reduce carbon emissions.