Abstract: This paper studies cross-country environmental spillovers in the growth of per-capita CO₂ emissions. Using a balanced country-year panel from 1985 to 2023, we estimate spatial Durbin models (SDMs) with two-way fixed effects to examine whether emissions growth diffuses across countries through geographic, trade, and financial networks. The analysis examines whether financial globalization and institutional capacity condition the direction and magnitude of these spillovers. We argue that financial integration can transmit either pollution-intensive growth or cleaner technologies, depending on countries’ institutional ability to allocate capital, absorb innovation, and coordinate environmental responses. To capture this mechanism, we propose a panel spatial threshold framework in which the interaction between financial globalization and institutional capacity determines regime-specific spillover effects. The preferred specification allows emissions growth spillovers to differ not only between low- and high-capacity countries, but also across within-regime and between-regime country pairs. Baseline results from the global SDM show significant positive spatial dependence in emissions growth and evidence of conditional convergence in per-capita emissions. The results suggest that cross-country environmental dynamics are not purely domestic, but depend on international network exposure and on the financial-institutional conditions under which spillovers operate. Robustness exercises using alternative spatial matrices, subsamples, and five-year averages further assess the stability of these spillover patterns.
Author: Myrto KASIOUMI, Andros KOURTELLOS
Keywords: CO₂ emissions growth; environmental spillovers; spatial Durbin model; panel spatial threshold regressions; spatial econometrics; financial globalization; institutional capacity; threshold effects; cross-country networks