<p>Achieving green growth has become a pressing challenge for developing economies, where the pursuit of rapid economic expansion often clashes with environmental sustainability. This study investigates how fiscal and monetary policies interact with institutional quality to influence green growth in six South Asian countries: Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka, between 1990 and 2021. While macroeconomic policies are central to development, their environmental consequences remain underexplored, particularly in regions with uneven institutional capacities. This paper makes an original contribution by jointly examining these policy tools alongside institutional quality, a relationship often overlooked in the literature. Methodologically, the analysis employs the quantile method of moments regression (MMQR) and the cross-sectional autoregressive distributed lag (CS-ARDL) model, approaches well-suited to capturing both heterogeneity and long-run dynamics across countries. These tools provide robust insights into how institutional frameworks and macroeconomic instruments shape sustainability outcomes. The results reveal that strong institutions, characterized by openness, accountability, and the rule of law, significantly promote green growth by creating conditions for sustainable investment and innovation. By contrast, poorly designed fiscal and monetary measures, such as excessive government spending or high real interest rates, tend to encourage resource-intensive and unsustainable activities. Importantly, institutional strength amplifies the positive effects of policies that support renewable energy, effective taxation, and financial regulation. Inclusively, the study underscores that coherent macroeconomic policies must be reinforced by strong institutions to place South Asia on a sustainable path toward long-term green growth.</p>

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Fiscal and monetary policy for green growth: the role of institutional quality in South Asia

  • Rabia Nazir,
  • Seemab Gillani,
  • Muhammad Nouman Shafiq,
  • Muhammad Junaid Nasrullah,
  • Muhammad Faisal Shahzad

摘要

Achieving green growth has become a pressing challenge for developing economies, where the pursuit of rapid economic expansion often clashes with environmental sustainability. This study investigates how fiscal and monetary policies interact with institutional quality to influence green growth in six South Asian countries: Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka, between 1990 and 2021. While macroeconomic policies are central to development, their environmental consequences remain underexplored, particularly in regions with uneven institutional capacities. This paper makes an original contribution by jointly examining these policy tools alongside institutional quality, a relationship often overlooked in the literature. Methodologically, the analysis employs the quantile method of moments regression (MMQR) and the cross-sectional autoregressive distributed lag (CS-ARDL) model, approaches well-suited to capturing both heterogeneity and long-run dynamics across countries. These tools provide robust insights into how institutional frameworks and macroeconomic instruments shape sustainability outcomes. The results reveal that strong institutions, characterized by openness, accountability, and the rule of law, significantly promote green growth by creating conditions for sustainable investment and innovation. By contrast, poorly designed fiscal and monetary measures, such as excessive government spending or high real interest rates, tend to encourage resource-intensive and unsustainable activities. Importantly, institutional strength amplifies the positive effects of policies that support renewable energy, effective taxation, and financial regulation. Inclusively, the study underscores that coherent macroeconomic policies must be reinforced by strong institutions to place South Asia on a sustainable path toward long-term green growth.