The Effects of Environmental Degradation and Institutional Quality on Inclusive Human Development in Asia

Abstract

 Social justice, economic expansion, and environmental sustainability are all parts of the broad idea of inclusive human development. Encouraging inclusive human development in Asia is hampered by the problems caused by environmental degradation and poor institutional quality. This study examines the effect of environmental degradation and institutional quality on inclusive human development for 30 Asian countries over the period 2010-2023. The analysis of balanced panel of Asia is performed at aggregated and disaggregated level. The panel has been disaggregated on the basis of income level of countries i.e. high income, upper middle income, and lower middle income countries. The empirical evidences are based on Fixed Effect and Random Effect techniques. The Driscoll-Kraay Standard Errors technique is applied to take into account the autocorrelation and heteroskedasticity to present results more precisely. The empirical results of the study show that environmental degradation 
has negative and significant effect on inclusive human development, while governance has positive impact on inclusive human development in Asia. The impact of environmental degradation and institutional quality is negative on inclusive human development in high income countries. However, in upper and lower middle income countries institutional quality has positive effect on inclusive human development. In the end to ensure sensitivity of regression parameters with respect to sign, significance and magnitude, sensitivity analysis has been performed by taking into consideration different proxies of environmental degradation. Better environmental policies and strengthening financial institutions are especially needed to increase environmental sustainability and promoting financial inclusion therefore, policymakers should give the top priority to environment and institutions for inclusive human development.