Abstract

This study investigates the impact of “economic growth, the usage of renewable energy and foreign direct investment inflows on carbon emissions” by moderating this linear relationship with the interaction of institutional quality of India over the period 1996 to 2021. The study employs causality test and autoregressive distributive lag model to examine the direction of causality and the long- and short-run impact of the variables on environmental degradation. The interaction of the institutional quality index with the regressors confirms the significant impact of institutions in moderating this relationship and significantly influencing the quality of environment. The findings of this research provide support to the “Environmental Kuznets Curve” theory, which suggests that pollution levels in the environment rise concurrently with the onset of economic expansion. However, ecological restoration starts after the economy’s income level reaches a particular threshold. In order to enhance environmental quality, policymakers should lay emphasis on improving institutional quality. High-quality institutions would promote control over corruption and formulation of rules and regulations directed toward reducing environmental degradation.