Institutional policies for ICT-driven environmental sustainability in high- and middle-income Asian countries

Abstract

Environmental degradation is a pressing global challenge, particularly across rapidly developing Asian economies. This study examines how information and communication technology (ICT) affects environmental quality and investigates whether institutional quality (IQ) moderates the ICT–CO2 emissions relationship. The study further explores heterogeneity between high and upper-middle income countries (HUMICs) and lower-middle income countries (LMICs) in Asia to understand how the level of economic development influences the environmental implications of digital transformation. The study uses panel data from Asian countries spanning 1995–2025. Countries are categorized into HUMICs and LMICs. To estimate both long-run and short-run dynamics and address heterogeneity, the analysis employs the pooled mean group–autoregressive distributed lag (PMG-ARDL) model. An interaction term (ICT × IQ) is included to assess the moderating role of institutional quality. Results reveal significant heterogeneity across income groups. ICT has a negative and statistically significant long-run effect on CO2 emissions in HUMICs, indicating that digital expansion contributes to emission reductions in more advanced economies. Conversely, ICT exerts a positive and significant long-run effect in LMICs, suggesting that early-stage digitalization increases emissions. The interaction term is positive and significant in HUMICs, implying that stronger institutions shape the emission-reducing potential of ICT. In LMICs, the interaction term is negative and significant, indicating that improved governance mitigates ICT-induced emissions. This study contributes to the existing body of knowledge by jointly examining ICT, institutional quality and environmental degradation across different income groups for Asian economies, highlighting the heterogeneous nature of digitalization's environmental impact.