Environmental Sustainability in OECD Nations: The Moderating Impact of Green Innovation on Urbanization and Green Growth

Abstract

Rapid urbanization and economic growth in OECD member nations have intensified environmental challenges, notably the rise in carbon dioxide (CO2) emissions. Despite significant research on urbanization and growth, there is little knowledge of how these factors interact with green innovation to affect CO2 emissions. This study addresses this gap by exploring the impacts of urbanization, green innovation, and green growth on CO2 emissions in OECD countries. Using panel data analysis from 1996 to 2022, this study employs a robust econometric approach, including the Breusch–Pagan and Pesaran tests for cross-sectional dependency, the CIPS unit root test, and cointegration tests by Kao and Westerlund. The results confirm the complex interrelations of the variables by revealing notable cross-sectional dependence and heterogeneity among them. Both the Driscoll–Kraay and System GMM estimations demonstrate that green growth (GreG) and green innovation (GrI) significantly reduce CO2 emanations, while urbanization (U) has a notable inverse effect. Renewable energy consumption (REnC) also contributes to lower pollution emanations, whereas energy consumption (EnC) and natural resource dependency (NrD) worsen environmental degradation. The study emphasizes the need for green economic policies and innovations to slow climate change, support sustainable growth, and improve environmental quality.