ENVIRONMENTAL DEGRADATION, ECONOMIC GROWTH, AND INDUSTRIALISATION IN ASEAN: EVIDENCE FROM DRISCOLL-KRAAY PANEL ESTIMATION WITH CROSS-SECTIONAL DEPENDENCE CORRECTION

This study examines the interrelationships among environmental degradation, economic growth, foreign direct investment (FDI), renewable energy consumption, and industrialization across ten ASEAN economies. It aims to assess whether economic expansion and capital inflows exacerbate environmental pressure and to what extent renewable energy can mitigate CO₂ emissions within the Environmental Kuznets Curve (EKC) framework. Study design: The analysis employs a balanced panel dataset covering the period 1990–2024. Environmental degradation is proxied by CO₂ emissions, while economic growth is measured by GDP per capita. FDI inflows, renewable energy consumption, and industrialization serve as key explanatory variables. Given the presence of cross-sectional dependence and slope heterogeneity, the study applies Driscoll-Kraay standard error estimators, supported by panel unit root, cointegration, and diagnostic tests to ensure robustness of the long-run estimates. Results: The findings provide suggestive evidence of long-run co-movement among the variables. Economic growth and industrialization are found to increase CO₂ emissions, consistent with the scale effect of growth, while the inverted U-shaped GDP–emissions relationship supports the EKC hypothesis. Renewable energy consumption significantly reduces environmental degradation. The environmental impact of FDI is positive but only weakly significant, suggesting that capital inflows may intensify emissions, though this result warrants cautious interpretation. Conclusion: Economic expansion and industrial growth remain key drivers of emissions in ASEAN, whereas renewable energy represents an effective decarbonization channel. The marginal role of FDI underscores the importance of the regulatory environment governing foreign capital. Implications: Policymakers should prioritize renewable energy deployment, promote cleaner industrial transformation, and strengthen environmental regulations on FDI to decouple economic growth from emissions across ASEAN economies.