Green innovation and sustainable foreign investment improve ecological capacity in E7 economies.

Abstract

The E-7 economies "Brazil, China, India, Indonesia, Mexico, Russia, and Türkiye" are now major engines of global growth, but this growth is placing heavy pressure on nature. A central policy question is therefore simple but urgent: which green tools actually help fast-growing economies stay within ecological limits? Existing evidence remains unclear because many studies focus only on carbon emissions and overlook how innovation, taxation, regulation, and foreign investment interact over time. Here, we address this gap by using the load capacity factor, a broader measure that compares human demand with nature's ability to regenerate. Using annual data from 1995 to 2023 and a GMM-PVAR model, we examine the dynamic effects of green innovation, environmental taxation, environmental policy stringency, and green foreign direct investment on environmental sustainability in the E-7. The results show that green innovation and green foreign direct investment improve ecological balance, suggesting that clean technology and green capital are central to sustainable transition. Environmental taxation also has a positive effect, but its role appears to depend on credible implementation. In contrast, stricter environmental policy shows a negative effect, indicating that regulation may fail or even backfire when enforcement capacity, institutional quality, or local acceptance is weak. Granger-causality and stability tests further support the dynamic links among these factors. These findings shift the policy message from simply imposing more rules to building stronger green innovation systems, attracting cleaner foreign investment, and improving policy delivery. For emerging economies, sustainability is not achieved by regulation alone; it requires turning green technology and clean capital into the core of development.