Gondwana Research 110 (2022) 114–127

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Gondwana Research
journal homepage: www.elsevier.com/locate/gr

Towards achieving eco-efficiency in top 10 polluted countries: The role

of green technology and natural resource rents
Fu Chen a,b, Shoaib Ahmad c, Salman Arshad d, Shafaqat Ali e,f,⇑, Muhammad Rizwan g,
Muhammad Hamzah Saleem h, Oana M. Driha i, Daniel Balsalobre-Lorente i,j
a
School of Public Administration, Hohai University, Nanjing 210098, China
b
Engineering Research Center of Ministry of Education for Mine Ecological Restoration, China University of Mining and Technology, Xuzhou 221116, China
c
State Key Laboratory of Pollution Control and Resource Reuse, School of Environment, Nanjing University, Nanjing, Jiangsu 210023, China
d
Lyallpur Business School, Government College University, Faisalabad, Pakistan
e
Department of Environmental Sciences and Engineering, Government College University, Faisalabad, Pakistan
f
Department of Biological Sciences and Technology, China Medical University, Taichung, Taiwan
g
Department of Environmental Sciences and Engineering, Government College University, Faisalabad, Pakistan
h
College of Plant Science and Technology, Huazhong Agricultural University, Wuhan, China
i
Department of Applied Economics, University of Alicante, Spain
j
Department of Political Economy and Public Finances, University of Castilla-La Mancha, Spain

a r t i c l e i n f o a b s t r a c t

Article history: Eco-efficiency has received much attention due to fast economic development and substantial environ-
Received 26 January 2022 mental pollution. Eco-efficiency analysis can be beneficial for benchmarking commodities and industries
Revised 6 June 2022 for sustainability and measuring and monitoring their environmental and economic performance.
Accepted 17 June 2022
Natural resources and green technologies are important influencing elements that substantially influence
Available online 22 June 2022
Handling Editor: A. Sinha
eco-efficiency. This article studies the influence of green technology and natural resource rents on eco-
efficiency using panel data from the top 10 polluted nations from 1990 to 2019. Multiple econometric
approaches were used to assess the empirical data, including the Westerlund cointegration test and
Keywords:
the cross-sectional autoregressive distributive lag model, the fully modified ordinary least square method
Eco-efficiency and the Granger causality test. The long-run results indicate that green technology, natural resource
Economic complexity rents, squared term of economic complexity, and the interaction term of green technology with financial
Financial development development positively influence eco-efficiency. However, eco-efficiency in these countries is negatively
Green technology influenced by financial development. The Dumitrescu and Hurlin causality test results show that financial
Natural resources development has a bidirectional causal relationship with eco-efficiency. However, natural resource rents,
green technology and the interaction term of green technology with financial development show a uni-
directional causal relationship with eco-efficiency. In line with these findings, governments should focus
on improving the environmental quality to promote eco-efficiency. Furthermore, such economies should
convert all their investment programmes toward green strategies. Environmental concerns will be
addressed as eco-efficiency is improved through green technology regulations.
Ó 2022 International Association for Gondwana Research. Published by Elsevier B.V. All rights reserved.

1. Introduction appearing a transition from primary to industrial and tertiary sec-

During the last decades, both developed and developing coun-
tries have experimented with strong structural transformations,
⇑ Corresponding author at: Department of Environmental Sciences and Engi-
neering, Government College University, Faisalabad, Pakistan.
E-mail addresses: chenfu@cumt.edu.cn (F. Chen), shoaibenv.1234@gmail.com
(S. Ahmad), salmanpansota@yahoo.com (S. Arshad), shafaqataligill@gcuf.edu.pk
(S. Ali), mrazi1532@yahoo.com (M. Rizwan), saleemhamza312@webmail.hzau.edu.
cn (M. Hamzah Saleem), oana.driha@ua.es (O.M. Driha), daniel.balsalobre@uclm.es
(D. Balsalobre-Lorente).
tors, appearing with more sophisticated and complex processes
(Cherniwchan, 2012), which directly hurts the environment, where
ascending fossil fuel consumption increase significantly carbon
emission levels (Li and Lin, 2015). On the other hand, the business
processes of reallocation and modernization of economic activities
also have positive effects by developing efficient processes of
reducing pollution and producing clean energy. Hence, the promo-
tion of green technologies and eco-innovation processes are defini-
tively geared at lessening the negative impacts of pollution via
composition and technical effects (Alvarez et al., 2017). The eco-

https://doi.org/10.1016/j.gr.2022.06.010
1342-937X/Ó 2022 International Association for Gondwana Research. Published by Elsevier B.V. All rights reserved.
F. Chen, S. Ahmad, S. Arshad et al.
List of Abbreviations
CO2 Carbon dioxide
D-H Dumitrescu and Hurlin
CSD cross-section dependence
GDP Gross domestic product
SBM Slack-based model
DEA Data envelopment analysis
LCA Life cycle hypothesis
FDI Foreign direct investment
DCCE Dynamic common correlated effects
NRR Natural resource rents
CS-ARDL Cross-sectional auto regressive distributive lag model
innovation processes also include innovations in renewable
energy, wastewater treatment, or clean and ecological food pro-
cessing and packaging, which is considered a primary driving fac-
tor for economic growth and sustainable development (Zhao et al.,
2022; Khan et al. 2022a and 2022b). For example, in 2020, the EU
countries adopted the European Green Deal, an agreement for pro-
moting green transformation in industrial strategy. This strategy
stimulates climate-neutral markets and the circular economy,
modernizing business processes and exploiting opportunities glob-
ally. In this context, The European Commission aims to present a
‘sustainable products’ policy that, among other priorities, will set
minimum requirements to prevent environmentally harmful prod-
ucts from being placed on the EU market.1 From the above discus-
sion, it becomes clear that structural changes in the economy can
affect the environment in several ways. To disentangle the net
effect of the process of structural transformation on environmental
performance, we employ the Economic Complexity Index (ECI),
which quantifies the ‘product space’ of countries, i.e., the network
representation of the products traded internationally.
Otherwise, the industrialization process has played a critical
role in the rise of a new middle class by creating new jobs and
training/education opportunities for workers. The industrialization
process has also resulted in higher levels of pollution (Antoci et al.,
2014; Nejat et al., 2015).
Environmental protection is high on the worldwide agenda, and
governments worldwide are looking for policies that will ensure
that environmental protection and economic development balance
each other (Pata et al., 2022). The increased consumption of natural
resources has severe consequences for the ecosystem, contributing
to multidimensional environmental problems and adverse climate
change (Bilgili and Ulucak, 2018; Rudolph and Figge, 2017). As a
result, long-term socioeconomic development targets are jeopar-
dized worldwide (Shahbaz et al., 2017). Despite internationally
agreed-upon initiatives, the situation continues to worsen. These
universally recognized concerns have piqued experts’ interest in
future environmental sustainability and sustainable development
(Cui et al., 2022).
Eco-efficiency, which encompasses economic, resource, envi-
ronmental, and social dimensions, has long been viewed as a useful
indicator of sustainable development effectiveness (Mickwitz et al.,
2006). Eco-efficiency, a mix of economic and ecological efficiency,
was developed by Schaltegger and Sturm (1989) to reflect an econ-
omy’s long-term transformation. Eco-efficiency, in general, refers
to the ability to create more products or services with fewer
resources and minor environmental damage. There is no unified
definition of eco-efficiency because it can be interpreted from the
perspectives of product resources. Hence, ecological consequences,
even though many types of eco-efficiency focus on only one eco-
element, have been developed, such as water efficiency, energy
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Gondwana Research 110 (2022) 114–127
EKC Environment Kuznets Curve
GHGs Greenhouse gases
3SLS Three-stage least-square
SEDEA Super-efficiency data envelopment analysis
GMM Generalized method of moments
SDGS Sustainable development goals
DOLS Dynamic ordinary least-square
FMOLS Fully modified ordinary least square
CADF cross-sectional augmented Dickey-Fuller
efficiency, or emission efficiency (Yao et al., 2018; Zhang et al.,
2015).
Furthermore, determining the effects of numerous measures on
ecological sustainability and efficiency is a hot issue among aca-
demics. Natural resources, for example, may play an essential role
in development and eco-efficiency. Natural resources are abundant
and are integral in contributing to economic growth and environ-
mental quality (Ahmadov and Borg, 2019; Su et al., 2020). This
study tackles the subject of natural resources in terms of how nat-
ural resources affect eco-efficiency. Forests, crops, fishing grounds,
grazing land, and developed lands help mitigate human-caused
destruction of the environment (Network, 2018). However, certain
natural resources, such as conventional fossil fuels, harm the envi-
ronment’s health (Ahmadov and Borg, 2019). The relationship
between natural resources and environmental sustainability has
been studied in many ways. According to (Hailu and Kipgen,
2017), the quantity of natural resources a nation has is critical
for its income per capita, determined by the extraction method
and how those resources are used. Human activities have a detri-
mental influence on the environment; they diminish production
capacity and degrade water quality (Balsalobre-Lorente et al.,
2018). The countries must improve their financial and natural
resource frameworks and increase their use of renewable energy
(Usman et al., 2022). Natural resources play a favourable function
in boosting economic growth and helping to enhance environmen-
tal quality in such a scenario (Charfeddine, 2017). There is a need
for technical innovation to increase economic growth and properly
use a country’s abundant natural resources (Sepehrdoust and
Shabkhanehb, 2018).
Technological innovation is critical for growth and economic
development (Ganda, 2019; D’Attoma and Leva, 2020). Green tech-
nology innovation focuses on environmentally friendly and
energy-saving sectors as a vital aspect of technological innovation
(Chen et al., 2019; Deng et al., 2019). Green technology is defined
as using technology for energy consumption and production to
increase energy efficiency and decrease negative environmental
consequences. It might be crucial in bringing the SDGs and eco-
nomic competitiveness together, placing them on the road to green
societies. According to Halder and Sethi (2022), rising economies
may cut emissions by responsibly increasing internet use and asso-
ciated applications. Theoretically, successful green technology
deployment and dissemination might help to ensure the sustain-
ability of the environment by compensating for scale effects
(Sarkodie et al., 2020; Chakraborty and Mazzanti, 2020). Product
and process innovation and effective management methods are
required to use natural resources to ensure environmental integ-
rity (Ahmad and Wu, 2022). As a result, green technology is
becoming more critical in lowering carbon emissions and
transitioning to a more sustainable and environmentally friendly
F. Chen, S. Ahmad, S. Arshad et al.
economy (Hashmi and Alam, 2019). A growing number of publica-
tions argue that enhancing the role of innovation in this transfor-
mation is critical (Ghisetti and Quatraro, 2014). According to
them, the development of green technology differs from country
to country. As a result, it is critical to investigate the impact of
green technology in light of unique social and economic situations
(Du et al., 2019).
Economic complexity and financial development are important
aspects of ensuring ecological sustainability. Economic complexity,
in particular, is a reliable predictor of the production structure.
Economic complexity is defined by Hausmann et al. (2014) as the
amount of knowledge concealed in an economy’s production sys-
tem. According to Romero and Gramkow (2021), the economic
complexity index represents more than the production system.
The conditions also comprise the information necessary for clean
manufacturing technology. It is believed that as the host econ-
omy’s economic complexity grows, environmental degradation
will diminish. Both emerging and developed nations should adopt
an acceptable CO2 emissions target and maintain a decent balance
between economic complexity and ecological sustainability based
on that aim (You et al., 2022). An increase in the economic com-
plexity leads to enhance R&D activities, and thus, clean technolo-
gies and environmentally friendly production are started (Neagu
and Teodoru, 2019). As a result, they detect the impact of economic
complexity in increasing eco-efficiency. Scholars have rerouted the
argument to the role of the financial sector in reducing harmful
effects on the environment in developing countries since the
mid-2000s because it is the financial sector that frequently dis-
tributes resources that investors use to produce industrial output,
consequently positively boosting economic growth (Ehigiamusoe
and Lean, 2019). An investment plan must also be examined for
physical and economic hazards by the financial sector. As a result,
environmental experts believe that if the financial sector is well-
developed and organized, it may play a critical role in combating
industrial pollution. The industry may do this by thoroughly vet-
ting investment proposals and giving cash solely to ecologically
sustainable ones. Financial development increases short-term pol-
lution while lowering long-term pollution (Mesagan and Olunkwa,
2022). It is thought that all the government needs to do now is
develop its financial sector, and the challenge of reducing pollution
caused by fossil industrial energy usage will be quite simple
(Destek and Sarkodie, 2019; Raheem et al., 2020).
In light of the preceding debate, it is clear that a study into sus-
tainable development and environmental sustainability is required
for the top-10 polluted nations to formulate appropriate energy
policies and promote clean and green technologies. As a result, this
research aims to describe sustainable growth in these nations in
the context of eco-efficiency. However, no one study has looked
at such a crucial part of sustainable development for these coun-
tries, indicating a research void in this area. Using data from
1990 to 2019, this study explores the impact of green technology
and natural resource rents on eco-efficiency in the top 10 polluted
nations. The top-10 polluted economies are China, the United
States of America (USA), India, Russia, Japan, Germany, South
Korea, Canada, Brazil, and Indonesia. One of the main reasons for
choosing these nations is that they are the largest contributors to
global GDP and the leading carbon emitters. According to the
World Bank, these nations contributed about 62% of the global
GDP in 2018 and accounted for nearly 66% of global carbon emis-
sions (Sun et al., 2021).
Furthermore, these countries have the greatest levels of tech-
nology and international competitiveness. The findings of this
study promote effective policies to encourage global sustainable
development. Meanwhile, this research adds to the growing body
of knowledge on eco-efficiency by providing a fresh viewpoint on
the subject. As a result, the research findings on eco-efficiency in
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Gondwana Research 110 (2022) 114–127
various nations are projected to provide governments with accu-
rate references to help them protect the environment while
increasing technological innovation and human well-being.
The authors argue that, in general terms, the eco-efficiency pro-
cess can explain environmental performance in selected top 10
polluted countries, offering fresh evidence through novel empirical
evidence that hypotheses a positive effect of green technology, nat-
ural resources rents as well as interaction term of green technology
and financial development on the eco-efficiency process. By con-
trast, our study tries to confirm the pernicious effect of fossil
sources on the efficiency process. So, this study contributes to
the literature on many fronts, offering innovative results to esti-
mate the eco-efficiency processes, being critical to understanding
green technology promotion as the main driver of this process.
The following is how the rest of the paper is organized: The
review of chosen literature on eco-efficiency and its affecting
aspects is briefly described in Section 2. Section 3 summarizes
the empirical approach, model, estimating methodologies, and
data. Section 4 describes and illustrates the findings and discus-
sion. Section 5 summarizes the study’s conclusions and policy
proposals.
2. Review of literature
Academia has already taken notice of research on gauging eco-
efficiency. According to current studies, researchers have
researched methodologies for measuring eco-efficiency. Several
researchers employed the SBM and enhanced DEA (Hu and Fu,
2016; Zheng et al., 2018). The DEA approach is the most exten-
sively used and is considered a more scientific way of determining
eco-efficiency. On the other hand, traditional DEA models struggle
to rank numerous decision-making units when multiple decision-
making units are involved, preventing further research. Andersen
and Petersen (1993) presented a SEDEA methodology to address
this shortcoming. Li et al. (2013) used the SEDEA model to measure
the eco-efficiency of 30 Chinese provinces, taking into account
unwanted outcomes. The eco-efficiency was measured by
Hunkeler and Rebitzer (2005) using the LCA. Some scientists
assessed the eco-efficiency of industries and production levels to
enhance productivity at the meso and micro levels based on stud-
ies on this subject (Junior et al., 2018; Ho et al., 2018).
Other academics have also emphasized the aspects that influ-
ence eco-efficiency. According to research, economic expansion,
government regulation, industrial structure, technological pro-
gress, financial development, resource endowment, and population
are all key elements impacting eco-efficiency (Yu et al., 2019;
Charfeddine and Mrabet, 2017). As a result, Li et al. (2013) demon-
strated that technological progress and fiscal decentralization had
typically beneficial effects on eco-efficiency. According to Zhang
et al. (2016), economic growth, industrial structure, innovation,
government regulation, and population density may greatly boost
eco-efficiency, whereas energy intensity significantly lowers eco-
efficiency. Su et al. (2021) also employed generalized spatial 3SLS
and simultaneous spatial equations to examine the spatial interac-
tion spillovers between financial technology and urban eco-
efficiency using data from 284 Chinese cities between 2008 and
2018. The findings revealed that financial technology and urban
eco-efficiency complement each other, with the latter taking the
lead. From 2008 to 2018, Yasmeen et al. (2020) utilized the system
GMM technique to investigate the effects of technological innova-
tion, environmental regulations, and urbanization on eco-
efficiency in 30 Chinese regions. Their findings showed that tech-
nological innovation has a considerably beneficial impact on
national and regional eco-efficiency. Later, Wang et al. (2021) used
the GMM model to assess the influence of collaborative innovation
F. Chen, S. Ahmad, S. Arshad et al.
on the eco-efficiency of several Chinese regions. Their findings
revealed that technological innovation investment has a negative
‘U’ connection with local eco-efficiency in other places, but human
resources for scientific and technological innovation had a positive
’U’ association.
According to Zhu et al. (2019), energy intensity and technology
investment negatively affect eco-efficiency, but economic growth
and population have beneficial consequences. Yao et al. (2021a)
investigated how urbanization and its inherent structure impact
eco-efficiency using panel data from China’s 30 provinces from
2008 to 2017. Their findings revealed that demographic and eco-
logical urbanization had considerable beneficial effects on local
eco-efficiency. By contrast, social and spatial urbanization had a
significant negative impact. Tu et al. (2019) proposed that eco-
nomic growth in China might enhance enterprise technical input,
resulting in mutually beneficial ecological and economic efficiency
gains. Wang et al. (2020) looked at corruption and resource misal-
location on eco-efficiency using data from 2006 to 2015. Their find-
ings revealed that corruption and resource misallocation had
detrimental consequences on eco-efficiency. Zhang and Liu
(2021) presented high theoretical and scientific value for environ-
mental improvement, recommending that businesses make signif-
icant efforts to increase eco-efficiency. According to Zhong and Hu
(2016), the resource endowments drive ‘‘socially beneficial efforts”
as economic demand grows. It will also stifle the advancement of
eco-efficiency and have a ‘‘ratchet effect” on manufacturing
efficiency.
Dong et al. (2020) employed an ecological footprint model to
assess the ecological footprints of 30 Chinese provinces and munic-
ipalities using data from 2007 to 2016. Economic growth, environ-
mental regulation, and technological improvement all have
favourable benefits on ecological performance, but the energy sup-
ply has a detrimental impact. Similarly, Liu et al. (2019) used data
from 30 provinces between 2010 and 2015 to determine the effect
of green financial development on regional eco-efficiency. The
findings showed that China’s GDP, urbanization rate, industry
structure, and energy efficiency statistically positively impacted
environmental efficiency. On the other hand, green financial devel-
opment does not significantly impact regional eco-efficiency. Bai
et al. (2018) examined the urban eco-efficiency of 281
prefecture-level cities in China from 2006 to 2013. They showed
that increasing urban eco-efficiency requires advancements in
technology and the establishment of efficient environmental laws.
Their findings served as essential guidelines for urban ecological
management and long-term urban development in China. Zhou
et al. (2020) applied a panel quantile technique to explore the
influence of population, urbanization lag and urbanization on
eco-efficiency processes. They concluded that FDI and growth pos-
itively impact eco-efficiency, but urbanization, industrial structure,
and population urbanization lag have negative impacts. Khalid
et al. (2021a) conducted a recent study examining the influence
of eco-efficiency and carbon footprints on the environment by
combining the production and consumption patterns of resource
use of 19 Asia Pacific countries from 1990 to 2018. Their findings
revealed the association between eco-efficiency, as a fraction of
resource use and urbanization, using FMOLS and DOLS panel coin-
tegration approaches.
2.1. Research gap
Most current research focuses on the link between financial
development, technologies, urbanization, industry structure, and
environmental sustainability. Furthermore, previous studies have
focused on eco-efficiency in a single nation; however, few studies
look at many countries. We employed the ratio approach to esti-
mate eco-efficiency in this study. Several studies have utilized this
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Gondwana Research 110 (2022) 114–127
approach to assess eco-efficiency. The authors used this technique
to measure eco-efficiency using a mathematical formula (economic
value/environmental effect) (Gancone et al., 2017; Khalid et al.,
2021b; Lopes et al., 2017; Vasquez et al., 2018). As a result, this
approach can be employed to measure eco-efficiency. Furthermore,
a review of prior research reveals that no study has taken into
account the influence of green technology and natural resource
rents on eco-efficiency in the context of the world’s top 10 polluted
countries. As a result, our research is well suited to fill the existing
research gap, and we believe it is a pioneer in this field.
3. Data and methodology
This section details the methods taken to achieve the study’s
objectives. The fundamental model was built first, defining the
variables and datasets associated with each variable. Third, cross-
sectional dependency testing, unit root testing, panel cointegration
testing, the CS-ARDL method, and panel causality testing were
used as econometric estimation approaches.
3.1. Model specification
Our theoretical approach is based on Dietz and Rosa’s (1994)
‘‘Stochastic Impacts via Regression on Population, Affluence, and
Technology” (STIRPAT) model, which is an enhanced version of
the IPAT (Impact = Population, Affluence and Technology) identity
with the addition of a stochastic or random factor. The following is
the mathematical representation for this model:
Iit ¼ #0 P#it1 A#it2 T#it3 lit ð1Þ
In Eq. (1), I denote environmental effects, P denotes population,
A denotes affluence, and T denotes technological effects. Further-
more, the coefficients to be estimated are #0 , #1 , #2 , #3 ; the random
error is denoted by l, and the panel unit is denoted by the sub-
script i, which relates to the top 10 polluted nations in the sample.
To quantify those negative environmental impacts, several pre-
vious studies looked at ecological footprint (Khan et al. 2022a and
2022b; Shahzad et al., 2022; Usman et al., 2022), CO2 emissions
(Halder and Sethi, 2022; Mesagan and Olunkwa, 2022), and other
GHGs (Halder and Sethi, 2022; Mesagan and Olunkwa, 2022).
These, however, cannot be considered complete indicators of the
ecological efficiency induced by human activity. As a result, we
use eco-efficiency to quantify ecological sustainability in the model
utilized by Khalid et al. (2021a, 2021b). Since eco-efficiency is the
inverse of intensity, it is simply the smart use of resources. It per-
tains to lowering the society’s ecological footprint while increasing
its degree of development and thus demonstrates a mix of effi-
ciency, ecology, and economy (ESCAP, 2009). The intensity of
resource consumption, environmental repercussions, or both can
be used to calculate eco-efficiency. It is calculated as a proportion
of environmental costs to economic activity (Vasquex et al., 2018;
Gancone et al., 2017).
Second, most previous studies (Awad and Warsame, 2022; Sun
et al., 2022; Xue et al., 2022) measured affluence by GDP to inte-
grate the environmental effects of economic actions for assessing
the EKC hypothesis, yielding mixed results on the establishment
of such a linkage. It raised the question of whether economic
growth can lead to ecological sustainability. However, some of
them, such as Chu (2021), included economic complexity as an
affluence element in their theoretical models. In light of the above
scenario, we employ economic complexity to assess a country’s
intrinsic capabilities in terms of the economy’s production struc-
ture. We also included the squared term of economic complexity
in our model to check the validity of the EKC hypothesis in the
top ten polluted countries.
F. Chen, S. Ahmad, S. Arshad et al.
Finally, we measure the technological component’s environ-
mental effect using financial development, natural resource rents,
and green technology. On the one hand, financial development
may negatively affect eco-efficiency since enterprises’ ability to
get loans to boost their output level grows as financial growth
improves. On the other hand, financial development may increase
eco-efficiency by giving loans to clean energy-oriented businesses
(Yao et al., 2021b). Similarly, green technology has been employed
as a new indicator of eco-efficiency by Hao et al. (2020) and Xin
and Zhang (2020) to validate the premise that efficient and unbi-
ased selected indicators can or cannot enhance the environment
quality. However, the interaction term of green technology with
financial development may lower the negative influence of finan-
cial development on environmental quality (Fareed et al., 2022).
Furthermore, natural resource rents may also positively influ-
ence eco-efficiency since nations with plentiful natural resources
might fall into the resource curse trap due to the poor quality of
their existing institutions and environment. As a result, various
socioeconomic situations may emerge, including a fall in the rate
of growth and ecological sustainability, increasing poverty and
inequality, and decreased stability (Siakwah, 2017). Natural
resource rents may also have a beneficial impact on eco-
efficiency since higher-income nations utilize their resources more
effectively. The negative impact of natural resource rents on eco-
efficiency, on the other hand, might be attributed to inefficient nat-
ural resource utilization, which leads to increased pollution. Eq. (1)
adopts the following form given the mentioned theoretical
linkages:
#2
EEit ¼ #0 ECI#it1 ECI2 it FD#it3 NRR4it GT#it5 GTit  FD#it6 li
We apply a natural logarithmic transformation to Eq. (2) for
simplicity of reading, yielding the following expression:
lnEEit ¼ #0 þ #1 ECIit þ #2 ECI2it þ #3 lnFDit þ #4 lnNRRit
þ #5 lnGTit þ #6 lnGT  lnFDit þ lit
EE represents eco-efficiency, ECI represents economic complex-
ity, ECI2 represents the square of economic complexity, FD repre-
sents financial development, GT represents green technology,
NRR represents natural resource rents, and GT  FD represents
the interaction term of green technology and financial develop-
ment. Additionally, ln denotes the natural log while l indicates
the random error, #0 , #1 , #2 , #3 , #4 , #5 , #6 represents the coefficients
to be estimated, and subscript i denotes the panel unit, which
relates to the world’s top 10 polluted nations.
3.2. Data sources and variables
This article used panel data for the top 10 polluted countries,
explicitly named; China, United States of America (USA), India,
Russia, Japan, Germany, South Korea, Canada, Brazil and Indonesia.
More specifically, this study applies the following variables in the
empirical analysis: eco-efficiency, financial development, eco-
nomic complexity, square of economic complexity, natural
resource rents, green technology and the interaction term of green
technology and financial development. Annual data on variables is
obtained from various sources, spanning the years 1990 to 2019.
The variables and data sources are detailed in Table 1. In addition,
Fig. 1 depicts the trend line for each country in the panel.
3.3. Econometric estimation strategy
The panel’s CSD is tested in this study to begin an empirical
assessment of the data under discussion. In addition, the study
looks at the panel of the existence of the unit root’s stationarity
across the time. This will lead us to use an appropriate econometric
Gondwana Research 110 (2022) 114–127
technique to determine the precise impact of each exogenous vari-
able on the eco-efficiency of the top 10 polluted economies. Finally,
the causal relationship between the dependent and independent
variables was investigated.
3.3.1. CSD tests
Trade and business have seen enormous expansion both inside
and beyond borders since the beginning of the industrial revolu-
tion, notably after 1840. The fundamental reason for this is that
technological breakthroughs and innovation have resulted in new
ways of working and living, transforming society. This shift
resulted in the production and manufacture of more things in a
shorter time. Furthermore, the demand for goods and services from
worldwide populations drives international trade, increasing a
country’s reliance on other countries. Moreover, countries world-
wide rely on one another to achieve diverse economic, financial,
and environmental goals. The interconnectedness of countries
indicates that countries may resemble one other in certain ways
while differing in others. As a result, panel data has CSD by default
(Hoyos and Sarafidis, 2006). Empirical investigations in the context
of CSD may provide erroneous and misleading results. The basic
CSD Lagrange Multiplier (LM) test was provided by Breusch and
Pagan (1980). Pesaran (2004) later proposed a consistent CSD to
deal with the large N setting cross-sections. We applied a variety
of CSD tests devised by Pesaran (2004), Friedman (1937), and
Breusch and Pagan (1980) for the entire panel to address this issue.
We also checked the CSD for each variable using Bias-corrected
scaled LM, Pesaran scaled LM, Breusch-Pagan LM, and Pesaran CD.
ð2Þ 3.3.2. Panel units root test
After that, we used Pesaran’s (Pesaran, 2007) CADF second-
generation unit root test on each variable. The test addresses the
CSD while also avoiding erroneous regression. Compared to tradi-
tional unit root testing, this test has more reliability for diverse
ð3Þ groups (Khalid et al., 2021a, 2021b). The conventional unit root
tests, in particular, are unable to address the CSD issue. As a result,
we used the second-generation unit root test for the stationary.
Panel CADF data are represented in equation form (Eq. (4)) as
follows:
* *
DXit ¼ ui þ di Xi;t1 þ ci Xt1 þ @i D Xt þ eit ð4Þ
When the first lag expression is placed in Eq. (3), the following
Eq. (5) is deduced:
* Xp *
DXit ¼ ui þ di Xi;t1 þ ci Xt1 þ @ij D Xtj
j¼0
Xp
þ d DXi;tj þ e
j¼1 ij
ð5Þ
it
*
Here, Xtj and DXi;tj assumes mean of lagged and first D (differ-
ence) operator across each cross-section.
3.3.3. Panel cointegration test
The cointegration test can reveal the long-term link between
the series mentioned above. If CSD occurs across cross-sections
and variables, conventional panel cointegration tests offer inaccu-
rate, misleading, and consequently inefficient information regard-
ing long-run estimates. As a result, to investigate the long-run
connection between variables, this study uses the Westerlund
cointegration test devised by Westerlund (2007). Similarly, Eq.
(6) gives the error correction (ECM) based cointegration formula-
tion as follows:
0
 0
 Xp
DYit ¼ d i dt þ gi Yi;t1  b i xi;t1 þ
i
g Dyi;tj
j¼1 ij
Xpi
þ c Dxi;tj þlit
j¼0 ij
ð6Þ
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Table 1
Data sources, variables and their definitions.

Variables Abbreviations Definition (Measurement) Expected sign Data Source

Eco-efficiency lnEE Natural log of CO2 emissions (Kt)/Gross domestic product in current N/A World Bank
US$
Economic complexity ECI Economic complexity index @lnEE
#1 = @ECI =< 0 Atlas data
bank
2 @lnEE
Squared term of economic complexity ECI Squared term of economic complexity index #2 = => 0 Atlas data
@ECI2
bank
Natural resource rents lnNRR Total Natural Resource rents (% of GDP) #3 =@lnEE
@ECI =< or > 0
World Bank
Financial development lnFD Natural log of Domestic credit to the private sector (% of GDP) #4 = World bank
@lnEE
@ECI =< or > 0
Green technology lnGT Renewable energy (% of total energy)/GDP (US current $) #5 = @lnEE
@ECI => 0
Knoema/WDI
Green technology  financial lnGT  lnFD Multiplication of Green technology and financial development @lnEE
#6 = @GTFD => 0 Knoema/WDI
development

Fig. 1. Trend of all study’s variables across the panel.

Where dt presents the constant and the deterministic trend for The rejection of Ho means the entire panel is cointegrated.
0
all individuals with d i , where as gi indicates the speed of adjust-
ment. This test is based on two statistics i.e. group (Gs, Ga) and 3.3.4. CS-ARDL technique
panel (Ps, Pa). The null and alternate hypotheses can be expressed The CS-ARDL model established by Chudik and Pesaran was
as: used to assess both the short-run and long-run coefficients
Ho: di = 0. (2015). The CS-ARDL is a good estimator since it gives reliable
H1: di = d < 0 (for all i). results on whether the data is stationary at the level, first order,
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or both, and whether or not the series is cointegrated (Wen et al.,
2022). Because this ARDL is part of the DCCE family, which incor-
porates individual estimates using the dependent variable’s lagged
term and lagged cross-section averages, the CSD has been consid-
ered (Chudik and Pesaran, 2015). This approach allows for a mean
group estimate when the slope coefficients are not homogeneous.
The CS-ARDL model’s mean group version, according to Chudik
et al. (2017), is based on augmenting each cross-ARDL section’s
assessment with cross-sectional averages that are proxies for
unobserved common factors and their delays.
Furthermore, the CS-ARDL addresses bland homogeneity, which
happens when a lagged dependent variable is included in the
model (Wen et al., 2022). The inventors of the method also claimed
that using lagged cross-section averages in the model primarily
addresses the issue of endogeneity. Also, CS-ARDL presents the
results in the presence of non-normality and the dataset’s hetero-
geneity among sample nations. The model produces more reliable
results than previous techniques since it reports the sampling
probabilities (Tang et al., 2022). Consider the following panel ARDL
model to understand the CS-ARDL estimator better:
X
p X
q 
yi;t ¼ /i þ uil yi;tl þ -il X i;tl þ ei;t
l¼1 l¼0
3.3.5. Robustness test
The CS-ARDL estimator has been criticized for imposing a
homogeneity constraint on long-run coefficients when nations dif-
fer in size and socioeconomic development. To address the poten-
tial difficulties of endogeneity and serial correlation, we used the
heterogeneous Fully Modified Ordinary Least Squares (FMOLS)
technique. Phillips and Hansen (1990) developed FMOLS to provide
optimum estimates of cointegrating regressions. This method uses
a non-parametric approach to tackle potential endogeneity
difficulties.
3.3.6. D-H panel causality test
Even though the CS-ARDL and FMOLS results are useful, they do
not reveal the direction of connection between variables, which is
critical for policy proposals. The Dumitrescu and Hurlin (2012)
technique is used in this study to examine the causal link between

underlying variables. This method produces two statistics, i.e., Z
 
and W . The Z denotes the standard normal distribution, whereas

W statistics indicate the test averages. The test mentioned above
yields efficient estimates when the cross-sections and time series
ð7Þ are not equal, i.e., T – N.

If there is a problem with heterogeneity, endogeneity, robust-

4. Empirical findings and their discussion
ness to omitted variables, non-stationarity and CSD, this approach
is appropriate to use. This technique recommends introducing
The analysis begins with descriptive statistics and correlation
cross-section averages of covariates, their lags, and the dependent
analysis. Table 2 summarizes the descriptive statistics of the inves-
variable to the standard ARDL method. The following is the basic
tigated factors and pairwise correlations between the investigated
model for CS-ARDL obtained by transforming Eq. (7):
variables. The mean score for eco-efficiency, for example, is 7.47,
X
p X
q  X
q  with values ranging from 8.743 to 4.901; however, the median
yi;t ¼ /i þ uil yi;tl þ -il X i;tl þ g0il Z i;tl þ ei;t ð8Þ value is 7.521. Furthermore, the mean and median for green tech-
l¼1 l¼0 l¼0
nology are 7.008 and 7.758, respectively. Natural resource rents
    and economic complexity means are 0.395 and 1.099, respec-
Z t ¼ yt ; X 0t ð9Þ tively. Further, financial development has a mean value of 4.168.
Green technology, followed by natural resource rents, is the most
eit ¼ p0i f t þ uit ð10Þ volatile of the analyzed variables.
 
In contrast, eco-efficiency, financial development and economic
Eq. (8) is denoted by Z t enclosing the dependent variable yt and complexity are less volatile. In line with previous literature

the cross-sectional averages for the covariates such asX 0t . Addition- (Ahmad et al., 2022), we assume that financial development can
ally, eit shows the error term, lag length for the cross-section aver- contribute to enhancing eco-efficiency processes via green tech-
ages is denoted by q, and f t represents the served common factor nologies. In other words, we find positive externalities from the
that reasons dependency among cross-sectional units. Further, interaction between the financial sector and green technologies,
the pooled mean group (PMG) approach estimates Eq. (8). Follow- furthering the results proposed by Sinha and Shen (2016) or
ing Eq. (11) computes the long-run coefficients given below: Ahmad et al. (2022), who argued that human capital could enhance
the environment. In addition, the Jarque-Bera test is used to deter-
qP _
_ g0 il mine the normality of the researched variables, which indicates
pi ¼ PI¼0
p _
ð11Þ whether or not all of the variables are legitimately normal. There
I¼1 c il
are both significant positive and negative associations between
Likewise, the error correction form of this model (ECM) can be the variables regarding correlations. Green technology and natural
calculated by transforming Eq. (7). Eq. (12) presents the ECM form resource rents positively correlate with eco-efficiency; however,
of the model: economic complexity and financial development negatively
  Xp X
q  correlate.
Dyi;t ¼ /i yi;t1  ϛX it þ uil yi;tl þ -il X i;tl Next, we use Friedman (1937), Pesaran (2004), and Breusch-
l¼1 l¼0 Pagan (1979) CSD tests to look for cross-sectional dependencies
X
q  in the panel. The null hypothesis of no CSD is rejected by all tests,
0
þ g il Z i;tl þ ei;t ð12Þ
indicating that our panel has CSD. As shown in Tables 3 and 4, the
l¼0
CSD results suggest that the cross-sections of the economies stud-
Here, ied are interdependent. This indicates that a shock in one of the
_ _ X
p sample nations gets passed on to the others.
_
/i ¼ 1  uil ð13Þ To determine the order of stationarity of the variables, we exe-
I¼1 cute a second-generation CADF unit root test. All of the variables
are determined to be level or first-order stationery. Table 5 shows
Pq _0
_ -il the results of the CADF unit root test. The second-generation unit-
ϛi ¼ I¼0
_ ð14Þ root test reveals that all variables are either I (0) or I (1). The
/i
Westerlund (2007) cointegration test examines the long-run coin-
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Table 2
Descriptive statistics and correlation analysis.

Descriptive Analysis
LNEE ECI LNFD LNNRR LNGT
Mean 7.347423 1.099523 4.168703 0.395719 7.008135
Median 7.521611 0.856119 4.334424 0.523867 7.758183
Maximum 4.901845 2.624820 5.251759 3.091556 1.660311
Minimum 8.743860 0.151225 1.879362 4.520353 10.25151
Std. Dev. 0.914606 0.805895 0.876675 2.209850 2.372569
Skewness 0.730834 0.349259 2.975860 0.484081 0.727350
Kurtosis 2.693207 1.718388 18.20314 1.874946 2.290804
Jarque-Bera 25.09423 23.87886 2998.782 24.78471 29.46498
Probability 0.000004 0.000007 0.000000 0.000004 0.000000
Correlation analysis
Probability LNEE ECI LNFD LNNRR LNGT
LNEE 1.0000
———
ECI 0.6220 1.0000
0.0000 ———
LNFD 0.3877 0.5384 1.0000
0.0000 0.0000 ———
LNNRR 0.5832 0.7876 0.4693 1.0000
0.0000 0.0000 0.0000 ———
LNGT 0.4918 0.8073 0.4267 0.7371 1.0000
0.0000 0.0000 0.0000 0.0000 ———

Table 3
Results of CSD tests for the whole panel.

Friedman Pesaran Breusch-Pagan LM

Test stat. p-value Test stat. p-value Test stat. p-value

82.081* 0.000 7.263* 0.000 292.632* 0.000

Note: *denote significance at 1% level.

Table 4
Results of CSD tests according to variables.

Breusch-Pagan LM Pesaran scaled LM Bias-corrected scaled LM Pesaran CD

Variables Statistic Statistic Statistic Statistic
(Prob.) (Prob.) (Prob.) (Prob.)
lnEE 942.6642 94.62211 94.44970 30.23082
(0.0000) (0.0000) (0.0000) (0.0000)
ECI 362.6399 33.48219 33.30978 3.386746
(0.0000) (0.0000) (0.0000) (0.0007)
lnFD 614.7506 60.05699 59.88458 0.384817
(0.0000) (0.0000) (0.0000) (0.7004)
lnGT 569.6502 55.30299 55.13058 9.488090
(0.0000) (0.0000) (0.0000) (0.0000)
lnNRR 367.2564 33.96881 33.79639 14.29857
(0.0000) (0.0000) (0.0000) (0.0000)

Table 5 Table 6
Results of CADF unit root test. Results of Westerlund ECM cointegration test.

Variables I(0) I(1) Statistic Value Z-value P-value Robust P-value

t-stat. P-value t-stat. P-value Gt 1.466 4.278 (1.000) (0.000)*
Ga 1.070 4.384 (1.000) (0.000)*
lnEE 2.017 (0.201) 3.195* (0.000)
Pt 4.336 3.152 (0.999) (0.000)*
lnECI 4.958* (0.000) — —
Pa 3.499 3.272 (1.000) (0.000)*
lnGT 2.577* (0.004) — —
lnFD 2.037 (0.183) 3.092* (0.000) Note: *denote significance level at 1%.
lnNRR 0.842 (0.999) 2.596* (0.003)

Note: *, ** represents the rejection of the null hypothesis of CADF unit root at 1 and
5% significance level.
tegration among the selected variables since the variables are at
first-difference stationary.
Table 6 shows that the null hypothesis of no cointegration
between the variables should be rejected based on the significant
robust p-values. As a result, long-term equilibrium between our
study’s variables is possible. The results of our core model estima-
tion are presented in Table 7. As previously mentioned, we use the
CS-ARDL panel estimator to account for CSD in the dataset.
The CS-ARDL findings, shown in Table 7, show that all factors,
including the squared term of economic complexity, green technol-
ogy, and natural resource rents, the interaction term of green tech-
nology and financial development, contribute considerably to
promoting eco-efficiency in the top 10 polluted nations over time.

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Table 7
Short and long-run results of CS-ARDL test.

Dependent variable = Eco-efficiency

Variables Coef. Std. Err. T P>|t| (95% Conf. Interval)
Long Run Est.
ECI 0.0350 0.0474 0.74 0.461 0.1280 0.0580
ECI2 0.0125** 0.0060 2.06 0.040 0.0005 0.0244
lnFD 0.1249*** 0.0755 1.65 0.098 0.2731 0.0231
lnGT 0.0362* 0.0131 2.76 0.006 0.0104 0.0620
lnNRR 0.0500* 0.0172 2.91 0.004 0.0163 0.0838
lnGT  lnFD 0.0223** 0.0089 2.50 0.012 0.0048 0.0398
Short Run Est.
ECT(-1) 0.6028* 0.0456 13.19 0.000 0.6923 0.5132
ECI 0.0509 0.0708 0.72 0.472 0.1898 0.0879
ECI2 0.0199** 0.0093 2.14 0.032 0.0017 0.0382
lnGT 0.0601* 0.0233 2.57 0.010 0.0142 0.1059
lnNRR 0.0808* 0.0301 2.68 0.007 0.0217 0.1399
lnFD 0.1856*** 0.1105 1.68 0.093 0.4023 0.0309
lnGT  lnFD 0.0372** 0.0148754 2.51 0.012 0.0081321 0.0664426

Note: *, **, *** represents the rejection of the null hypothesis at 1%, 5% and 10% level of significance.

However, financial development reduces these countries’ eco-
efficiency. Initially, the model is estimated in this study to test
for the presence of an EKC relationship using economic complexity
and the squared term of economic complexity. According to the
results, ECI has a negligible impact on eco-efficiency. In this regard,
the negligible elasticity demonstrates that a 1% increase in eco-
nomic complexity has no long-term effect on eco-efficiency in
the top 10 polluted nations. This unexpected result is consistent
with Khezri et al. (2022). However, After a certain point, the coef-
ficient of the squared term of economic complexity becomes signif-
icant and positive. In particular, a 1% rise in squared term of
economic complexity enhances eco-efficiency by 0.0125% in the
long run, which is consistent with the prior work of Balsalobre-
Lorente et al. (2022). These findings indicate the existence of a
U-shaped ecoefficiency-economic complexity EKC relationship in
the top ten polluted nations (see Fig. 4).
From Fig. 4, we find that when economic complexity reaches a
value of 1.4, the selected panel presents will reach a direct link
between the eco-efficiency process. According to the database,
the USA, Japan, Germany, and South Korea had reached a turning
point in 2019, appearing to be a direct link between eco-
efficiency and economic complexity. This situation categorizes
eco-efficiency behaviour in terms of economic complexity, where
the scale effect does not present at the beginning of economic
growth. After reaching a particular economic level, a growth in
economic complexity would lower the environmental pollution
demonstrating the improving eco-efficiency. This result confirms
the technical and composition effect in the top ten polluting
countries.
The findings also found that a 1% rise in financial development
resulted in a -0.1249% decrease in eco-efficiency. As a result of this
finding, the developed financial sector decreases the eco-efficiency
in the world’s top 10 polluted countries. As most of these countries
belong to the high and upper-middle-income groups, their finan-
cial systems spend more resources on small and large-scale indus-
trial units. Financiers raise their finances in this manner to
reimburse small-scale firms for reimbursement (Usman and
Jahanger, 2021). As a corollary, capitalization consequences restrict
technological implications and, eventually, growth of the financial
system, reducing eco-efficiency in these nations.
Furthermore, the expansion of the financial sector increases
the purchasing power of consumers by offering cheap borrowing.
This process enables customers to acquire valuable and luxurious
things like air conditioners, vehicles, and commercial properties,
all of which significantly strain the environment and diminish
eco-efficiency (Usman et al.,2022). However, the interaction effect
of green technology with financial development is significantly
positive, which enhances eco-efficiency. This empiric reveals that
green technology reduces the environmental cost of financial
development (Ramzan et al., 2022; Haldar and Sethi, 2022).
Surprisingly, NRR has a beneficial influence on environmental
efficiency, and it means that a 1% rise in natural resource rents
results in a 0.0500% increase in eco-efficiency. Natural resources
have a beneficial influence on environmental quality when sustain-
able and management options are coupled with consumption and
production. As a result, the rate of natural resource depletion and
environmental stress decreases, allowing natural resources to
recover. However, transitioning from outmoded technologies to
advanced technologies incorporating recycling, refining, innova-
tion, value-added, and artificial resources that replace natural
resources would increase economic development and improve
environmental quality (Bekun, Alola et al., 2019). Natural resource
plenty decreases reliance on fossil fuel imports since natural
resource abundance is sufficient to supply energy requirements,
and as a result, environmental impact is reduced (Ulucak and
Khan 2020).
Furthermore, this positive association phenomenon may be sta-
ted in simple terms. The regeneration potential of natural
resources can increase environmental quality, implying that natu-
ral resources can counter the drawbacks of fossil fuel energy, as
NRR reduces the country’s reliance on imported and polluting tra-
ditional fossil fuels. This result is consistent with Tufail et al. (2021)
for developed nations and Shittu et al. (2021) for Asia, but it con-
tradicts Usman et al. (2022).
Furthermore, a novel variable signified by GT has a positive and
significant influence on eco-efficiency. This means that a 1%
improvement in green technology results in a 0.0362% gain in
eco-efficiency. The current conclusion emphasizes green energy
collaboration to establish a more ecologically friendly energy sys-
tem and green financial support to encourage sustainable growth.
Low energy efficiency is also one of the primary issues that
received specific attention from the panel. As a result, green tech-
nology may be a crucial signal that explains the study’s findings for
the top 10 polluted economies to adopt clean-environment legisla-
tion. According to empirical studies, green technology and the
existing energy structure of the sample countries reduce environ-
mental strain. Although energy intensity has decreased signifi-
cantly in recent years, a selected panel of countries must
transition from conventional to contemporary energy sources in
their manufacturing process. One of the critical advantages of

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F. Chen, S. Ahmad, S. Arshad et al.
green technology is that it reduces the ratio of traditional energy
per output. To promote eco-efficiency, policymakers should
expand clean technologies or increase energy efficiency. In this
regard, green technology in the form of renewable energy can be
an option, significantly when the role of traditional energies in
these nations’ energy structures decreases. Green energy laws
and regulations are intended to increase the usage of renewable
energy sources and stimulate energy innovation to mitigate the
negative impact of conventional energy sources on the environ-
ment. Aside from authorities in specific economies, assistance for
academics and scientific institutions should be prioritized to
achieve better energy efficiency levels. In different areas, particu-
larly in the energy industry, the use and encouragement of
energy-efficient and clean technology should be promoted and
supported. The findings of Dogan et al. (2020) also support the out-
come of green technology.
The CS-ARDL, on the other hand, gives brief coefficient esti-
mates for each exogenous variable. In this aspect, each variable’s
short-run and long-run effects are said to be identical. However,
in all variables, the impact size is stronger in the short run than
in the long run, with a 1% rise in each, green technology, natural
resource rents, green technology  financial development and
squared term of economic complexity boost eco-efficiency by
0.0601%, 0.0808%, 0.0372% and 0.0199%, respectively. A 1% increase
in financial development, on the other hand, reduces eco-efficiency
by -0.1856%. The observed results are significant at the 1%, 5%, and
10% significance levels.
Furthermore, the findings were consistent with the empirical
findings of the previous investigations. The CS-ARDL also includes
an error correction term, which is viewed as the speed of adjust-
ment towards the long-run equilibrium position in terms of the
effect of each exogenous variable on the eco-efficiency in the short
run. To be more exact, the ECT revealed that the model is
approaching equilibrium at 60% every year.
The model is re-estimated using the panel FMOLS estimator to
test the robustness of the elasticity estimates. Table 8 summarises
the findings of the robustness analysis. Although the magnitudes of
the elasticity estimates varied, the similarities in their signs indi-
cate the robustness of the elasticity estimations across the regres-
sion techniques evaluated in this research. Fig. 2 depicts the
graphical representation of estimated results. To check the multi-
collinearity among the explanatory variables, we utilize the Vari-
ance Inflation Factor (VIF) test of multicollinearity presented in
Table 9. The VIF test results indicate that all the explanatory vari-
ables are free of multicollinearity. After the regression analysis, the
results of the panel D-H causality test are derived.
This study evaluated the causal relationship between the fac-
tors under discussion after experimentally assessing the effect of
each exogenous variable on the eco-efficiency of the top 10 pol-
luted nations using the CS-ARDL estimator. In this regard, the
Dumitrescu and Hurlin (2012) granger panel causality test were
used in this investigation, and the estimated results are shown in
Table 10. Besides economic complexity and squared term of eco-
Table 8
Robustness Analysis.
Dependent variable = Eco-efficiency
Variable Coefficient
ECI 0.006508
ECI2 0.213618
LNFD 0.129274
LNNRR 0.020141
LNGT 0.291654
LNGT  LNFD 0.023336
Note: * represents the rejection of the null hypothesis at 1% level of significance.
Gondwana Research 110 (2022) 114–127
nomic complexity, the findings revealed that all factors of interest
have a substantial causal relationship with eco-efficiency in the top
10 polluted nations. This result also provides persuasive evidence
that our estimation findings are not accidental and that the chosen
explanatory factors affect the explained variable. In particular,
financial development has a bidirectional causal link with eco-
efficiency. Furthermore, there is a unidirectional causal link
between natural resource rents and eco-efficiency, green technol-
ogy and eco-efficiency, as well as green technology  financial
development and eco-efficiency. Fig. 3 depicts the main summary
of causal relationships and long-run cointegration among the
variables.
5. Conclusion and policy proposals
Eco-efficiency is a critical component for advocating fundamen-
tal changes in how societies generate and consume resources and
monitoring green growth success. Eco-efficiency has gotten much
attention in the literature on sustainable development, which is
not unexpected (Schaltegger and Synnestvedt, 2002). It is crucial
in conveying the efficiency of economic activity in terms of natural
products and services. This research adds to the current literature
by including green technology and natural resource rents in the
eco-efficiency model for the top 10 polluted nations from 1990
to 2019. Furthermore, other variables such as economic complex-
ity, financial development, and the interaction term of green tech-
nology with financial development are considered. We employ
innovative econometric approaches for empirical analysis. The
CSD result indicates that all of these variables are cross-
sectionally dependent. Apart from green technology and economic
complexity, second-generation unit-root tests show that all vari-
ables are non-stationary at the level but stationary at the first dif-
ference. On the other hand, economic complexity and green
technology are stationary at a level.
Furthermore, second-generation Westerlund cointegration
investigates if the observed variables have a long-term connection.
The CS-ARDL estimator is used to calculate the short and long-run
elasticities. To check the robustness of outcomes, we employ the
FMOLS method. In addition, we used the Granger causality test
Fig. 2. Graphical representation of estimated long run coefficients.
Std. Error t-Statistic Prob.
0.015552 0.418469 (0.6760)
0.006652 32.11425 (0.0000)*
0.014889 8.682468 (0.0000)*
0.003960 5.086043 (0.0000)*
0.009216 31.64694 (0.0000)*
0.002215 10.53357 (0.0000)*
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Table 9 squared term of economic complexity have no causal link with

Results of Variance Inflation Factor (VIF) test. eco-efficiency in these nations. These findings show that policies
Variable VIF 1/VIF aimed at any of these variables might considerably impact the
ECI 4.25 0.235176 top 10 polluted economies’ eco-efficiency. Several policy recom-
lnNRR 2.91 0.344011 mendations are based on the factors’ influence on the eco-
lnGT 2.45 0.408871 efficiency of the top 10 polluting nations.
lnFD 1.32 0.757950 Because there is a significant positive association between
Mean VIF 2.73
green technology and eco-efficiency, increasing green technology
increases eco-efficiency by minimizing the ecological impact. It
may be concluded that green technology increases the degree of
Table 10
eco-efficiency in the top 10 polluted economies, and these econo-
Results of Dumitrescu Hurlin Panel Causality Test.
mies are on the right track. Governments should focus on improv-
Null Hypothesis: W-Stat. Zbar-Stat. Prob. ing environmental quality to increase eco-efficiency. Furthermore,
ECI – lnEE 1.77379 1.26669 (0.2053) such economies should convert their investment programmes to
lnEE – ECI 2.43693 2.48396 (0.0130)** green strategies. Environmental concerns will be addressed as
ECI2 – lnEE 1.66377 1.06620 (0.2863)
eco-efficiency is improved through green technology regulation.
lnEE – ECI2 2.38389 2.38900 (0.0169)**
lnFD – lnEE 2.95215 3.43282 (0.0006)* Natural resource rents are critical to the advancement of every
lnEE – lnFD 2.94481 3.41935 (0.0006)* economy. In a panel of the top 10 polluted nations, natural
lnNRR – lnEE 2.84520 3.23637 (0.0012)* resources were positively linked with eco-efficiency. As previously
lnEE – lnNRR 1.44148 0.65787 (0.5106) stated, most of the countries in the selected panel belong to the
lnGT – lnEE 3.12128 3.74351 (0.0002)*
lnEE – lnGT 1.23689 0.28207 (0.7779)
high and upper-middle-income groups. As a result, these countries
lnGT  lnFD – lnEE 3.06713 3.64404 (0.0003)* are already making better use of their natural resources. However,
lnEE – lnGT  lnFD 1.31078 0.41780 (0.6761) the governments of these countries should continue to control the
ECI2 – ECI 4.53281 6.33123 (2.E-10) excessive use of natural resources. It may be able to improve its
ECI – ECI2 5.06285 7.30419 (3.E-13)
residents’ consumption patterns by lowering fishing and deforesta-
lnFD – ECI 2.08844 1.84426 (0.0651)***
ECI – lnFD 1.98321 1.65111 (0.0987)*** tion, saving energy and water resources, utilizing energy-efficient
lnNRR – ECI 1.20455 0.22177 (0.8245) items, and introducing high-quality into their everyday life. In
ECI – lnNRR 2.56378 2.71682 (0.0066)* managing the use of rare resources, the industry should be strictly
lnGT – ECI 2.31891 2.26732 (0.0234)** controlled; the mining industry, especially, should be urged to
ECI – lnGT 2.30537 2.24247 (0.0249)**
lnGT  lnFD – ECI 3.08172 3.66757 (0.0002)*
employ innovative and energy-efficient technology in their opera-
ECI – lnGT  lnFD 1.46164 0.69370 (0.4879) tions. These countries may reach a higher degree of eco-efficiency
lnFD – ECI2 2.35951 2.34421 (0.0191)** this way.
ECI2 – lnFD 1.90350 1.50656 (0.1319) Our findings show that financial development has a long-term
lnNRR – ECI2 1.14320 0.10997 (0.9124)
negative and significant association with eco-efficiency. This evi-
ECI2 – lnNRR 2.31128 2.25562 (0.0241)**
lnGT – ECI2 2.20611 2.06242 (0.0392)** dence indicates that the financial industry contributes to environ-
ECI2 – lnGT 2.85033 3.24580 (0.0012)* mental pollution by giving loans to environmentally polluting
lnGT  lnFD – ECI2 3.20018 3.88843 (0.0001)* initiatives in the chosen panel. Because the existing body of litera-
ECI2 – lnGT  LNFD 2.12423 1.91203 (0.0559)*** ture also incorporates green technology and financial development
lnNRR – lnFD 1.72549 1.17958 (0.2382)
together, this study investigates a new indication of how the com-
lnFD – lnNRR 2.26845 2.17695 (0.0295)**
lnGT – lnFD 3.69534 4.79800 (2.E-06) bination of green technology and financial development might
lnFD – lnGT 1.74126 1.20854 (0.2268) alter the harmful effects of financial development for eco-
lnGT  lnFD – lnFD 3.82875 5.04306 (5.E-07) efficiency. As a result, these countries should gradually boost the
lnFD – lnGT  lnFD 2.23248 2.11087 (0.0348)**
use of green technology solutions in their financial sectors to
lnGT – lnNRR 1.14462 0.11257 (0.9104)
lnNRR – lnGT 2.02342 1.72685 (0.0842)*** improve eco-efficiency. Green technology can help to improve
lnGT  lnFD – lnNRR 1.65482 1.04976 (0.2938) financial activity and increase the availability of financial resources
lnNRR – lnGT  lnFD 1.87097 1.44681 (0.1480) for environmentally friendly projects. As a result, enhancing and
lnGT  lnFD – lnGT 1.30627 0.40950 (0.6822) sustaining the financial sector’s efficiency in these economies
lnGT – lnGT  lnFD 1.65880 1.05708 (0.2905)
may help to raise the degree of eco-efficiency.
Note: *, ** represents the rejection of the null hypothesis at 1%, and 5% level of Consequently, the findings of the economic complexity-based
significance. EKC hypothesis show that governments in these nations should
heavily stimulate exports of energy-efficient items and knowledge
in this study to see if the study variables are useful in anticipating in order to achieve greater eco-efficiency. More incentives should
other variables. be provided to firms who adopt more environmentally friendly
Regarding the specific impact of explanatory variables on eco- energy sources, and a Pigovian tax should be levied on the usage
efficiency, the CS-ARDL approach results show that the squared of traditional energy sources. As a result, the top ten polluted
term of economic complexity, green technology, natural resource nations may boost exports of high-value-added and complex
rents and green technology  financial development are all critical items, which leads to eco-efficiency. Furthermore, because com-
factors that promote eco-efficiency in the top 10 polluted coun- plex items are sophisticated, economic returns can be significant,
tries. On the other hand, financial development has no positive and their productions contribute to eco-efficiency. These countries
impact on these countries’ eco-efficiency. Furthermore, the granger must make efforts to preserve and improve the quality of their out-
panel causality test confirms a bidirectional causal relationship put. Furthermore, efforts should be made to construct educational
between eco-efficiency and financial development. On the other workshops to improve the abilities of these organizations’ staff. All
hand, green technology, natural resource rents and green of the recommended measures will contribute to long-term eco-
technology  financial development have a one-way causal rela- nomic growth and eco-efficiency, assisting in achieving the global
tionship with eco-efficiency. Further, economic complexity and sustainable target of 2030.

124
F. Chen, S. Ahmad, S. Arshad et al. Gondwana Research 110 (2022) 114–127

Fig. 3. Summary of results.

Fig. 4. U-shaped EKC between Eco-innovation & Economic Complexity.

125
F. Chen, S. Ahmad, S. Arshad et al.
The main limitation of this study is that it only looks at the
top10 most polluting economies. Future studies may replicate
these findings across other income groups to have a deeper under-
standing. Furthermore, when predicting eco-efficiency, we just
considered a few factors. Other eco-efficiency determinants may
be included in future research as prospective expansions.
CRediT authorship contribution statement
Fu Chen: Supervision, Conceptualization, Project administra-
tion, Methodology, Writing – review & editing, Software, Formal
analysis. Shoaib Ahmad: Methodology, Data curation, Validation,
Resources, Writing – original draft, Software, Formal analysis. Sal-
man Arshad: Conceptualization, Visualization, Writing – original
draft, Writing – review & editing, Resources, Validation. Shafaqat
Ali: Supervision, Conceptualization, Project administration, Writ-
ing – review & editing, Writing – original draft, Software, Formal
analysis. Muhammad Rizwan: Methodology, Data curation, Writ-
ing – original draft. Muhammad Hamzah Saleem: Visualization,
Writing – original draft, Writing – review & editing, Resources, Val-
idation. Oana M. Driha: Writing – review & editing, Writing – orig-
inal draft, Software. Daniel Balsalobre-Lorente: Methodology,
Data curation, Software, Formal analysis.
Declaration of Competing Interest
The authors declare that they have no known competing finan-
cial interests or personal relationships that could have appeared
to influence the work reported in this paper.
Acknowledgements
This work was supported by the National Natural Science Foun-
dation of China (No.51974313) and the key project of Jiangsu Key
Laboratory of Coal-based Greenhouse Gas Control and Utilization
(2020ZDZZ03).
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