What question did this study set out to answer?

This research aims to understand how industrialization, urbanization, and other factors affect environmental quality in developing countries.

February 2, 2026Open Access

Industrialization and Inclusive Growth on Business Environmental Quality: Evidence From Developing Countries

Key Points

This research aims to understand how industrialization, urbanization, and other factors affect environmental quality in developing countries.
Applied the Panel Autoregressive Distributed Lag (ARDL) model to panel data from 1990–2023
Focused on emerging economies including BRICS, MINT, and regions from Central Asia and East and Pacific Asia
Utilized frameworks like Environmental Kuznets Curve (EKC) and Pollution Haven Hypothesis (PHH) to analyze influences
Industrialization increases CO2 emissions by 82.4% and greenhouse gas emissions by 87.3%
Urbanization increases CO2 emissions by 86.0% and greenhouse gas emissions by 77.1%
Trade openness and foreign direct investment worsen environmental degradation due to weak regulations
Validation of EKC hypothesis indicates emissions decline at higher income levels

Abstract

The contributive effect of industrialization (INDU), urbanization (URB), trade openness (TOR), energy use (ENR), net inflow (FDI), and inclusive growth (INGP) on environmental quality remains a critical global concern, particularly in emerging economies where rapid industrial expansion and urbanization exacerbate environmental degradation. Despite global initiatives to improve the environmental quality of emerging economies, they continue to experience increasing emissions due to fossil fuel dependence, lax environmental policies, and carbon-intensive FDI inflows. Most extant studies focus on developed economies, ignoring a critical gap in understanding how these drivers influence environmental quality in emerging regions. This study addresses this gap using the Environmental Kuznets Curve (EKC), Pollution Haven Hypothesis (PHH), and Stochastic Impacts by Regression on Population, Affluence, and Technology (STIRPAT) frameworks. Applying the Panel Autoregressive Distributed Lag (ARDL) model (PARDL) model to panel data (1990–2023) from BRICS, MINT, SAARC, Central Asia, and East and Pacific Asia, we analyze both the short- and long-run effects of these drivers. The results show that INDU and URB significantly degrade environmental quality, increasing CO 2 emissions by 82.4% and 86.0% and GHG emissions by 87.3% and 77.1%, respectively, thus supporting the STIRPAT model, acknowledging INDU and URB as drivers of environmental degradation. TOR and FDI exacerbate environmental degradation due to lax regulations, supporting PHH. This study validates the EKC hypothesis, with emissions declining at higher income levels. While the influences are consistent across blocs, their magnitudes vary. This study advocates green industrialization, stringent regulations, and sustainable energy policies. These results provide insights for policymakers to balance development and environmental sustainability. JEL Classification: O14, Q56, F18, Q53, C33, Q43.

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