Can Environmental Policy Stringency Enhance Load Capacity Factor? Evidence from Common Correlated Effects Mean Group Estimation
DOI:
https://doi.org/10.54938/ijemdss.2026.05.2.675Keywords:
Environmental Policy Stringency; Ecological Sustainability; LCF; OECD; Common Correlated Effects Mean GroupAbstract
Environmental policy has become an essential instrument for promoting ecological sustainability; however, empirical evidence on its effectiveness remains inconclusive, particularly for OECD countries. This study investigates the impact of Environmental Policy Stringency (EPS), economic growth, foreign direct investment (FDI), and industrialization on the Load Capacity Factor (LCF), an overall measure of ecological sustainability, in nine OECD countries between 1990 and 2020. The empirical analysis is based on a second-generation panel econometric approach. The Pesaran Cross-Sectional Augmented IPS (CIPS) unit root test and the Westerlund cointegration test are used to confirm the existence of a long-run relationship between the variables when slope heteroscedasticity and cross-sectional dependence are detected. The primary estimation technique is the Common Correlated Effects Mean Group (CCEMG) estimator, and the Mean Group (MG) estimator is used as a robustness check. Furthermore, the results indicated that the greater the stringency of environmental policies, the better the ecological sustainability, as evidenced by improvements in the Load Capacity Factor, thereby supporting the Porter Hypothesis. There is also a positive influence of FDI; this means that technology transfer and environmentally friendly production methods outweigh pollution-intensive investment. Economic growth and industrialization, on the other hand, have a negative impact on the LCF, indicating that production and consumption patterns remain resource-intensive despite environmental regulations. These results are robust and stable, as confirmed by the robustness analysis. The study makes a significant contribution to the environmental sustainability literature by applying an integrated sustainability indicator (Load Capacity Factor), and by providing recent empirical evidence from OECD countries, based on a second-generation panel estimation technique. The results guide developing and implementing policies that promote both economic development and long-term ecological sustainability.
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