External debt, renewable energy, and CO 2 emissions in LMIEs: A pathway toward sustainable development goals

This study explores the complex linkage between external debt and green investments in LMIEs concerning environmental sustainability, in line with the SDGs. This study examines the effects of external debt, renewable energy, natural resource rents, industrialization, population size, and FDI on CO2 emissions. Based on a large and diverse panel dataset, the study applies Augmented Mean Group (AMG), Common Correlated Effects Mean Group (CCMG), and Pooled Mean Group (PMG) econometric estimators to address biases and heterogeneity. The results show that external debt hinders green investment and elevates CO2 emissions in the long run. Conversely, this study established that renewable energy consumption is a critical factor in preventing environmental depletion, thereby demonstrating its viability as a substitute. Natural resource rents and industrialization are identified as significant predictors of CO2 emissions, highlighting the ecological impacts of rentier and industrialized economies. The population size and FDI findings are inconclusive and suggest the need for country-specific strategies to promote economic growth without compromising the environment. The findings suggest that policymakers in low- and middle-income economies should prioritize directing external debt toward renewable energy projects and green infrastructure while strengthening environmental regulations governing foreign direct investment and industrial activities. Such targeted policies can simultaneously promote economic development and reduce CO2 emissions, thereby supporting the achievement of the Sustainable Development Goals (SDGs), particularly SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action).