Drivers of Carbon Emissions in Transition Economies: Evidence from Upper-Middle-Income Countries

Candy Candy; Hesniati Hesniati; Stewendy Stewendy

doi:10.37278/eprofit.v8i2.1559

Authors

Candy Candy Management, Business and Management, Universitas Internasional Batam
Hesniati Hesniati Management, Business and Management, Universitas Internasional Batam
Stewendy Stewendy Management, Business and Management, Universitas Internasional Batam

DOI:

https://doi.org/10.37278/eprofit.v8i2.1559

Keywords:

Carbon Emissions, Economic Growth, FDI, Renewable Energy

Abstract

This study examines the effects of economic growth, foreign direct investment (FDI), renewable energy, and financial development on carbon emissions in upper-middle-income countries from 2000 to 2025. Rapid economic expansion in developing economies has increased environmental pressure through rising carbon emissions associated with energy consumption and industrial activities. To address inconsistencies in prior studies, this research integrates multiple economic determinants into a single analytical framework. Using a quantitative approach, panel data regression analysis was conducted on annual data from 54 upper-middle-income countries obtained from the World Bank’s World Development Indicators. Carbon emissions per capita were used as a proxy for environmental degradation, while GDP growth, FDI, renewable energy consumption, and financial development served as explanatory variables. To ensure robustness, alternative estimation techniques, including Clustered Standard Errors, Generalized Least Squares (GLS), and Driscoll-Kraay estimators, were applied. The findings indicate that GDP growth has a positive and significant effect on carbon emissions across all specifications, suggesting that economic expansion continues to generate environmental pressure. Renewable energy consistently reduces carbon emissions and emerges as the most robust determinant of environmental improvement. FDI shows a negative association with carbon emissions, providing partial support for the pollution halo effect, although its significance varies across estimators. Financial development exhibits a positive association with carbon emissions but remains sensitive to alternative estimation techniques. These findings imply that policymakers in upper-middle-income countries should prioritize accelerating renewable energy deployment and embedding emission-reduction measures in growth strategies, while directing financial and foreign investment toward green finance and clean-technology projects.

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