Transforming Costa Rica's environmental quality: The role of renewable energy, rule of law, corruption control, and foreign direct investment in building a sustainable future

Abstract

Driving the shift towards a sustainable future, Costa Rica's efforts to reduce its ecological footprint are at the heart of its ambitious National Decarbonization Plan (NDP), targeting carbon neutrality by 2050. This study explores the dynamic interactions between the rule of law, corruption, foreign direct investment (FDI), and renewable energy in influencing environmental quality from the first quarter of 1990 to the fourth quarter of 2020. We employed advanced techniques like Wavelet Quantile Regression (WQR) and Quantile-on-Quantile Granger Causality (QQGC). WQR enabled us to evaluate the strength and direction of the interrelationships, while QQGC helped determine the causality between the ecological footprint (EFP) and its driving factors across various quantiles and time periods. WQR analysis shows that renewable energy shrinks ecological footprint. Corruption has a strong short-term negative impact, which lessens over time. FDI's effects vary, with short-term pressures balanced by strong governance. The Rule of Law initially raises ecological pressure but ultimately supports long-term sustainability. QQGC uncovers one way directional Granger causality between all variables under investigation, indicating that each factor influences and is influenced by the others. Based on the findings, policymakers must strengthen legal frameworks, promoting green investments, and enhancing transparency in environmental governance. These strategies are essential for developing countries seeking to harmonize economic growth with ecological preservation, providing a blueprint for following Costa Rica's exemplary path in environmental leadership. © 2024 Elsevier Ltd