Threshold Effects of Innovation Indices on Environmental Quality in Selected Science-Producing Countries: A Panel Smooth Transition Regression Approach

As resource and environmental challenges continue to arise, research has shifted towards economic development in an environmentally sustainable manner. Innovation plays a crucial role to balance the economy, resources, and environment. This study investigated the nonlinear effects of innovation input indices on environmental quality using the panel smooth transition regression method. The study analyzed the effects of different innovation regimes on environmental quality in selected science-producing countries during 2011–2022 period. Five innovation input indices were used to examine the effects of innovation on environmental quality: institutions, human capital and research, infrastructure, market sophistication, and business sophistication. The results indicated a nonlinear and asymmetric relationship between innovation and the environment. In the first regime, as innovation indices increase, environmental quality declines; however, upon crossing the threshold and entering the second regime, these effects become positive and significant. Notably, the human capital and research variable consistently had positive and significant effects on environmental quality in both regimes. For the protection and enhancement of the environment and the achievement of green growth, it is recommended that general environmental policies, including political, economic, supervisory, and ecological tools, be used together.