The Influence of Green Trade Openness, Natural Resources Rent, Institutional Quality, and R&D Investment on Environmental Sustainability in the OECD: Testing the EKC and LCC Hypotheses

Abdulateif A. Almulhim^1*Md Qamruzzaman^2*Abdullah A Aljughaiman¹

• ¹King Faisal University, Al-Ahsa, Eastern Province, Saudi Arabia
• ²United International University, Dhaka, Bangladesh

This study investigates the impact of green trade openness, natural resource rent, institutional quality, and research and development (R&D) investment on environmental sustainability in OECD countries from during 2000 2007 to -2022. By employing advanced panel econometric techniques, including the Environmental Kuznets Curve (EKC) and Load Capacity Curve (LCC) hypotheses, the study provides a comprehensive assessment of economic-environmental dynamics. The findings confirm the EKC hypothesis, indicating that while economic growth initially increases CO₂ emissions, it later contributes to sustainability beyond a threshold income level. Similarly, the LCC hypothesis reveals that economic expansion enhances sustainability capacity only when supported by strong institutional frameworks and technological advancements. The empirical results establish that green trade openness significantly reduces CO₂ emissions and enhances the load capacity factor (LCF), demonstrating the critical role of sustainable trade practices in mitigating environmental degradation. Institutional quality positively influences sustainability by strengthening environmental policies, governance mechanisms, and regulatory compliance. However, natural resource rents exacerbate CO₂ emissions and negatively affect LCF, reinforcing the notion that resource dependence without effective governance leads to ecological deterioration. Conversely, R&D investment plays a pivotal role in driving environmental sustainability, as technological innovation accelerates the transition toward cleaner energy and resource efficiency. Causality analysis confirms bidirectional relationships between green trade openness, institutional quality, and sustainability indicators, underscoring the interdependent nature of economic policies and environmental outcomes. Policy recommendations emphasize the need for OECD nations to strengthen institutional governance, implement stringent environmental policies, and foster trade liberalization with sustainability-focused frameworks. Moreover, reinvesting natural resource rents into green innovation and clean energy transitions is crucial to mitigating adverse environmental impacts. Governments must enhance R&D funding to accelerate eco-innovation and support policies that incentivize businesses to adopt sustainable practices.