EPE and Industrialization working Data and Do files

This study examines the impact of Environmental Policy Effectiveness (EPE) on industrialization in low- and middle-income countries, focusing on three hypotheses: a linear relationship between EPE and industrialization, a non-linear threshold effect, and the moderating role of regulatory quality.

The data consists of a 19-year panel dataset from 104 countries across Asia, Latin America & the Caribbean, and Sub-Saharan Africa. It includes an EPE index (quantifying environmental policy stringency and effectiveness), industrialization indicators (measuring industrial output), and regulatory quality scores from sources like the World Bank. The EPE index was created by reviewing governmental data and international reports, and the regulatory and industrialization data were sourced from national economic indicators.

The findings reveal that EPE has a significant negative linear relationship with industrialization, suggesting that stringent environmental policies initially limit industrial growth, with Sub-Saharan Africa showing early positive effects from recent environmental regulations. However, the study uncovers a non-linear relationship where, beyond an EPE threshold of 36.2, industrialization benefits from stricter policies. This threshold effect aligns with the Porter Hypothesis, indicating that stringent environmental regulations can drive industrial innovation and competitiveness.

Regulatory quality plays a moderating role, particularly in Asia, where robust regulations alleviate the negative effects of EPE on industrial growth. In Latin America & the Caribbean and Sub-Saharan Africa, economic-focused regulatory frameworks limit this balancing effect, highlighting the need for region-specific policy adaptation.

These results imply that while initial environmental policies may hinder industrial growth, surpassing a policy threshold allows for positive impacts on industrialization, especially in regions with strong regulatory quality. Policymakers should prioritize regulatory reforms and strengthen frameworks to balance environmental and economic goals, particularly in developing regions. The study calls for targeted policies, international collaboration, and capacity-building to support sustainable industrialization aligned with environmental objectives.