sustainability

Article
Examining the Impact of External Debt, Natural Resources,
Foreign Direct Investment, and Economic Growth on Ecological
Sustainability in Brazil
Saleem Haji Saleem 1 , Dildar Haydar Ahmed 1,2 and Ahmed Samour 3, *

1 Faculty of Administrative and Economics, Near East University, Nicosia 99138, Turkey;
[email protected] (S.H.S.); [email protected] (D.H.A.)
2 Department of Economic Science, College of Administration and Economics, University of Zakho,
Zakho P.O. Box 12, Iraq
3 Accounting Department, Dhofar University, Salalah 211, Oman
* Correspondence: [email protected]

Abstract: Although some recent papers have explored the impacts of external debt on environmental
sustainability, the impacts of external debt on the load capacity factor (LCF) have been ignored. In
this regard, this work aims to examine the influence of renewable energy, FDI, and external debt on
the LCF in Brazil over the period 1970–2021; this indicator implies the country’s strength to promote
the population based on current lifestyles. This paper uses the novel augmented autoregressive
distributive lag (A-ARDL) technique. The findings from the A-ARDL show that renewable energy
positively influenced ecological sustainability by promoting the LCF by 0.451% in the short run and
0.038% in the long run. In addition, the findings show that an increase in the rent of natural resources
promotes the LCF. In contrast, the outcomes illustrate that an increase in the external debt led to an
adverse impact on ecological sustainability by decreasing the level of LCF by 0.093% in the short run
and 0.162% in the long run. Furthermore, the findings demonstrated that FDI negatively affects the
ecological sustainability quality by reducing the LCF in the country. The study provides beneficial
recommendations to policymakers in Brazil for achieving sustainable development in Brazil.

Citation: Saleem, S.H.; Ahmed, D.H.; Keywords: sustainability; Brazil; load capacity factor; energy; external debt
Samour, A. Examining the Impact of
External Debt, Natural Resources,
Foreign Direct Investment, and
Economic Growth on Ecological
1. Introduction
Sustainability in Brazil. Sustainability
2024, 16, 1037. https://doi.org/ In the modern era, all economies are mainly reliant on fossil fuel energy at all stages
10.3390/su16031037 of economic activities. Thus, energy has become an essential ingredient of industrialization
and growth. Global fossil fuel energy use has risen over time due to excessive economic
Academic Editor: Antonio Boggia
and financial development objectives, and significant industrialization. However, this type
Received: 12 December 2023 of energy produces large amounts of carbon emissions (CO2 ), resulting in global warming
Revised: 20 January 2024 and climate change [1]. Over the last few decades, a growing consensus has emerged
Accepted: 22 January 2024 among environmental policymakers and scientists that global warming adversely impacts
Published: 25 January 2024 individual life, human well-being, and ecological sustainability [2], as a result of effects
such as severe weather extremes. Therefore, mitigating CO2 emissions and promoting
environmental neutrality have become a worldwide concern for sustainable development.
To combat the arduous challenge of ecological pollution, many nations have imple-
Copyright: © 2024 by the authors.
mented several environmental policies to promote environmental sustainability [3]. In
Licensee MDPI, Basel, Switzerland.
2015, more than 200 nations jointly proposed an international climate agreement (Paris
This article is an open access article
2015 Agreement) in France, which set the goal of achieving “net zero” ecological emissions
distributed under the terms and
by the end of 2050. Likewise, among the United Nations Sustainable Development Goals
conditions of the Creative Commons
(SDGs), SDGs 13 and 7 aim to incorporate government strategies to combat climate change
Attribution (CC BY) license (https://
creativecommons.org/licenses/by/
and global warming rapidly, and promote accessibility of green energy sources to mitigate
4.0/).
ecological pollution and achieve the SDGs [4].

Sustainability 2024, 16, 1037. https://doi.org/10.3390/su16031037 https://www.mdpi.com/journal/sustainability

Sustainability 2024, 16, 1037 2 of 17

Environmental sustainability occupies a significant place on the agenda of nations and

policymakers as well as in the literature. Thus, governments are seeking to find different
paths leading to ecological sustainability to achieve the SDGs that combine all the activities
that promote long-term economic and financial development without negatively affecting
society. Ecological sustainability can only be achieved by examining the association between
economic factors and ecological pollution. Against this background, the present paper
explores the influence of external debt, FDI, renewable energy, and economic growth on
ecological sustainability in Brazil. In this way, the prime objective of the present work is to
answer three questions: Could external debt be a prime determinant of the LCF in the case
of Brazil? What is the impact of foreign direct investment (FDI) on the LCF in the case of
Brazil? Could REC affect the LCF in Brazil?
The linkage among economic development and environmental sustainability has at-
tracted continuous recognition and significance in the ecological empirical literature [5–8].
Several empirical studies suggest that the significant increase in global economic and fi-
nancial development signifies a strong probability of an increase in demand for energy,
which would concurrently cause grave ecological pollution concerns. On the other hand,
a significant increase in external debt and its effects have received significant attention in
the energy and environment literature. Some papers have investigated the interconnection
between external debt and economic expansion (e.g., [9–11]). Other papers have assessed
the connection between debt and ecological sustainability (e.g., [12–14]). However, it is
evident that no agreement has been reached on the impact of external debt on ecological
sustainability. Sadiq et al. [8] indicated that external debt can provide finance sources for
the energy transition, which in turn affects the level of renewable utilization and environ-
mental quality. In contrast, using these sources to finance fossil fuel energy utilization and
investment may increase ecological pollution. Katircioglu and Celebi [12] indicated that
the government uses external debt to decrease the saving–investment gap. Additionally,
these sources can drive energy demand, thereby promoting the level of energy use. Farooq
et al. [15] indicated that external debt indirectly affects ecological sustainability through the
economic channel. An adequate level of public debt is believed to promote capital inflow,
reinforce investment, and positively affect economic performance. Subsequently, it may
affect ecological sustainability. In contrast, Akam et al. [16] suggested that external debt
does not contribute to ecological sustainability in the studied countries.
According to the gaps observed in the empirical literature, the current paper con-
tributes to the empirical studies in the following ways. First, some recent empirical papers
have used the LCF as a fresh indicator to evaluate ecological quality (e.g., [17–20]). The
mentioned papers measured environmental sustainability using the ecological footprint
and CO2 emission indicators. These proxies cover the demand part of environmental
sustainability but exclude the supply part. Therefore, there is a need for an ecological
indicator that takes into account both the supply sides of nature (biocapacity) and the
demand sides of ecological sustainability (ecological footprint) [11]. In this regard, Siche
et al. (2010) [21] proposed the LCF as an upgraded proxy to evaluate environmental
sustainability by analyzing both biocapacity and ecological footprint to provide a more
comprehensive indicator of ecological sustainability. Hence, this indicator can help the
country to assess whether the environment is sustained (if the value of LCF is more than
one) or not (if the value of LCF is less than one). However, the existing empirical literature
has ignored the connection between external debt and LCF. Consequently, the aim of this
paper is to assess the influence of external debt on the LCF for the first time in the case
of Brazil. In this context, the study aims to fill the gap in the ecological sustainability
literature by assessing the determinants of LCF in Brazil and taking the role of external debt
into consideration. The present study is the first to study the impact of external debt on
environmental sustainability using the novel proxy LCF. Second, several approaches, such
as the autoregressive distributed lag (ARDL) method, have been used to evaluate ecological
quality. The upgraded ARDL technique, as introduced by Sam et al. (2019) [22], has not
been commonly employed in the extant empirical studies. Hence, the main objective of this
 on environmental sustainability using the novel proxy LCF. Second, several approaches,
such as the autoregressive distributed lag (ARDL) method, have been used to evaluate
ecological quality. The upgraded ARDL technique, as introduced by Sam et al. (2019)
Sustainability 2024, 16, 1037 [22], has not been commonly employed in the extant empirical studies. Hence, the main 3 of 17
objective of this research is to offer fresh evidence by applying the novel AARDL ap-
proach. This approach takes into account the 𝐹 for the overall test and the 𝑇
research
on a laggedis todependent
offer fresh variable,
evidence and the 𝐹 the novel
by applying for the AARDL approach.
independent This approach
variable provide
takes findings
better into accountthanthetheFtraditional
statistic for the and the TFinally,
overall testmethods.
cointegration statistic on
it aislagged
criticaldependent
to under-
variable,
stand the and
mainthe Fstatistic for the
determinants independent
of the load capacity variable provide
factor better
in Brazil, findings
which than the tra-
is considered as
ditional
one of thecointegration methods. Finally,
world’s fastest-growing it is critical
economies, to to understand
explore the mainand
this country determinants
offer useful of
the load capacity factor in Brazil, which is considered as one
recommendations based on empirical findings. Thus, the present paper aims to offer of the world’s fastest-growing
economies,
some importantto explore this country and
recommendations offer
to the useful recommendations
policymakers based onecological
in Brazil to achieve empirical
findings. Thus,
sustainability bythe present renewable
promoting paper aimsenergy to offerinvestment
some important recommendations to the
and production.
policymakers in Brazil
Brazil presents to achieve
an ideal ecological
case study sustainability
for examining by promoting
the impact of externalrenewable energy
debt, natural
investmentand
resources, andFDIproduction.
on environmental sustainability: (1) Brazil has become one of the
safestBrazil
placespresents an ideal
in the Latin case study
America for which
region, examining the impact
has helped of external
to attract large debt, natural
amounts of
resources, and FDI on environmental sustainability: (1) Brazil
savings and FDI. The country was valued at USD 1.92 trillion in terms of gross domestic has become one of the safest
places in(GDP)
product the Latin America
in 2022. Thisregion,
makes which has helped
the country one of to the
attract largeeconomies
biggest amounts ofinsavings
South
and FDI. The country was valued at USD 1.92 trillion in
America. In addition, foreign direct investments in the country have increased terms of gross domestic product
signifi-
(GDP)over
cantly in 2022. This
the last fewmakes the country
decades, from USD one391of million
the biggest economies
in 1970 to USD 91 in South
billionAmerica.
in 2020.
Brazil is grouped along with the leading five emerging countries. (2) External debt over
In addition, foreign direct investments in the country have increased significantly has
the laststeadily
grown few decades,
over thefrom last USD 391 million
few decades, in 1970intoleading
especially USD 91 billion in
emerging 2020. Brazil
economies suchis
grouped
as Brazil. along with the
The external debtleading
in thefive emerging
country countries.
increased to USD (2)4251
External
billiondebt has end
by the grownof
2020, its highest level since 1970. (3) Despite being an emerging economy, Brazil hasBrazil.
steadily over the last few decades, especially in leading emerging economies such as been
The external debt in the country increased to USD 4251 billion by the end of 2020, its
classified as one of the economies with the largest sources of renewables. The country
highest level since 1970. (3) Despite being an emerging economy, Brazil has been classified
generates 89 percent of its electricity from green energy sources. Furthermore, the share
as one of the economies with the largest sources of renewables. The country generates
of renewable energy of total energy utilization increased from 26% in 1970 to 48% in 2022.
89 percent of its electricity from green energy sources. Furthermore, the share of renewable
Renewable sources such as hydropower and solar power dominate a significant part of
energy of total energy utilization increased from 26% in 1970 to 48% in 2022. Renewable
the country’s energy sector [14]. (4) Brazil ratified the Paris agreement in September 2016,
sources such as hydropower and solar power dominate a significant part of the country’s
committing to lowering greenhouse gas and achieving environmental neutrality by 2050.
energy sector [14]. (4) Brazil ratified the Paris agreement in September 2016, committing to
Nevertheless, Brazil is classified as one of the top-10 carbon emitters in the world. The
lowering greenhouse gas and achieving environmental neutrality by 2050. Nevertheless,
country’s ecological quality level has declined over the last few decades. In this context,
Brazil is classified as one of the top-10 carbon emitters in the world. The country’s ecological
the LCF factor in Brazil decreased from 7.9 in 1970 to 3.35 in 2021 (see Figure 1). There-
quality level has declined over the last few decades. In this context, the LCF factor in Brazil
fore, the country has significant ecological challenges and mitigating ecological pollution
decreased from 7.9 in 1970 to 3.35 in 2021 (see Figure 1). Therefore, the country has
should be aecological
significant priority. challenges and mitigating ecological pollution should be a priority.

9
8
7
6
5
4 LCF
3
2
1
0
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021

TheLCF
Figure1.1.the
Figure LCFininthe
theUSA
USAover
overthe
thetested
testedperiod.
period.

The structure of this paper is designed as follows. The empirical literature review
section is presented in Section 2. Sections 3 and 4 present the data, model, employed
methodology, and empirical outcomes. Lastly, Sections 5 and 6 include this work’s empirical
discussion and conclusion.
Sustainability 2024, 16, 1037 4 of 17

2. Literature Review
2.1. Energy, Economic Growth, and Ecological Sustainability
A growing body of scientific papers has emerged on the influence of economic ex-
pansion and renewable energy consumption (REC) on ecological quality. For example,
Charfeddine and Mrabet [6] utilized the Dynamic Ordinary Least Squares (DOLS) test to
explore the impacts of economic growth and REC on the EF in Middle East and North
African (MENA) economies. The study demonstrated that economic growth decreases
environmental sustainability by increasing the EF. Using the same approach, Shah et al. [4]
assessed the impact of REC on EF in the BRICS economies over the period 1990–2019. Their
outcomes showed that REC decreases EF in the tested economies, implying that these
variables positively contribute to ecological sustainability. Zafar et al. [7] investigated the
connections among the EF, economic expansion, and REC in the case of the USA over the
period from 1970 to 2015. Using the ARDL method, the outcomes displayed that REC is
helpful in curtailing EF, while economic expansion is harmful. Using the CS-ARDL test
and data from 1995 to 2017 in China, Shen et al. [23] evaluated the impact of REC and
economic expansion on CO2 . The authors found that economic expansion increases the
CO2 emissions while REC contributes to a CO2 decrease. Wei et al. [24] evaluated the nexus
among REC and CO2 in Brazil using data from the period from 1990 to 2018. The authors
found evidence indicating a positive linkage between REC and CO2 emissions in the SEA
region. The authors of [25] assessed the impact of clean energy technologies on ecological
sustainability in 29 sub-Saharan African economies from 2002 to 2018. The findings of this
study indicated that clean energy promotes ecological sustainability. Using the LCF as a
novel indictor to determine the ecological quality, Pata and Samour [18] demonstrated that
REC had a positive impact on LCF in the case of 27 OECD economies from 1990 to 2018.
Pata et al. [19] assessed the connection among economic expansion, REC, and LCF in the
USA over the period from 1961 to 2018. The findings demonstrated that economic growth
reduces environmental sustainability, while the REC promotes it.

2.2. Nexus between Natural Resources and Ecological Sustainability

In the literature, scientific interest in the connection between natural resources rent
(NRR) and ecological sustainability has increased significantly, focusing on different key
indicators for assessing ecological sustainability. Some papers have used CO2 and EF
as proxies to capture ecological sustainability. For instance, Shen et al. [23] used CS-
ARDL to examine the nexus between NRR and CO2 for 30 Chinese provinces from 1975
to 2015. The authors of this study found evidence of a positive relationship between
NRR and CO2 emissions. Similarly, Xiaoman et al. [26] conducted the GMM test to assess
the same relation in the case of the MENA economies from 1980 to 2018. The authors
reported that NRE significantly improves environmental sustainability. Similar results were
found by Kongbuamai et al. [27] who implied that NRR helps to improve the ecological
sustainability of the ASEAN economies. Conversely, Ahmad et al. [28] examined this
relation in some emerging economies from 1984 to 2016 and found that NRR positively
influences EF. Recently, some studies have used LCF to evaluate the linkage between
NRR and environmental sustainability. For example, Sun et al. [29] employed the AMG
assessment to assess the linkage between NRR and LCF for selected Asian economies from
1990–2019, and suggested that NRR increases the LCF in the tested countries. Jin et al. [30]
used A-ARDL and evaluated the same link in Germany from 1974 to 2018. Their findings
showed that NRR has a negative influence on the LCF. In contrast, Li et al. [31] used the
CS-ARDL approach and found that an increase in NRR has a negative impact on LCF in
the case of the Next 11 countries.

2.3. Nexus between FDI and Ecological Sustainability

Several studies have assessed the linkage between FDI and ecological sustainability
in the context of the pollution haven (PHV) and pollution halo (PHO) hypotheses. These
hypotheses were proposed by Walter and Ugelow [32] and Baumol and Oates [33] to
Sustainability 2024, 16, 1037 5 of 17

evaluate whether FDI transfers pollution-intensive industries to the host economies and
leads to environmental degradation. PHVH implies an increase in FDI will lead to a
rise in carbon emissions. This can be attributed to the fact that ecological pollution from
developed economies is being shifted to less developed countries because of a need to
reduce production costs and protect their countries’ environmental quality. With the
absence of stringent environmental regulations in the host economies, the carbon emission
level will be increased [34]. Doytch [35] assessed the influence of FDI on the EF in some
developing and developed economies, finding that FDI increases the EF in the tested
countries. For 31 African countries, Arogundade et al. [4] demonstrated that an increase in
FDI led to a rise in ecological footprint, indicating that the hypothesis was valid. Similarly,
Sabir and Gorus [36] found that the PHV hypothesis was valid in the case of South Asian
economies over the period of 1975–2017. Recently, Wei et al. [37] suggested that the PHV
hypothesis is valid in the belt and road initiative region. On the other hand, the PHV
hypothesis argues that multinational firms transfer their greener technologies to host
countries through FDI, which, in turn, leads to ecological sustainability being enhanced. In
this context, Yi et al. [38] suggested that ecological quality is positively associated with FDI
by providing more modern and green technology.

2.4. Nexus between External Debt and Ecological Sustainability

The external debt of a country can have a powerful influence on its economic growth,
which in turn may affect the environmental quality. This may require these economies
to adopt additional policies to avoid the adverse impact of external debt on ecological
quality. Several studies have emphasized the association among economic growth and
carbon emission, but research on the direct impacts of external debt on the environment is
still limited. In this context, Bese [14] examined the influence of external debt on the level of
carbon emissions in China from 1978 to 2014. Using the ARDL approach, the study showed
that an increase in external debt led to increased CO2 emissions in the tested country.
Using the ARDL approach, Katircioglu and Celebi [12] suggested the existence of a positive
linkage between foreign debt and Turkey’s carbon emissions. The authors suggested
that their results can be attributed to fact that an increase in the level of debt increases
investment in the country, which in turn increases the energy demand, thereby worsening
ecological pollution. Conversely, Sadiq et al. [8] assessed the influence of debt on ecological
sustainability in the BRICS. The authors found that external debt promoted environmental
sustainability in the tested countries from 1990 to 2019. According to the authors, external
debt may provide the necessary resources for the green energy transition by financing
green energy investment and projects. Hence, external debt can play a positive role in
promoting ecological sustainability. Farooq et al. (2023) [15] assessed the link between
debt and ecological degradation in Organisation of Islamic Cooperation countries for the
period from 1996 to 2018. The authors found that an increase in the level of debt increased
ecological degradation in the tested countries. The authors suggested that external debt can
affect ecological sustainability through the economic channel by promoting capital inflow
and investment. However, some studies have not found any significant link between debt
and ecological sustainability. For example, Akam et al. [16] examined this relation in the
case of the South African, Algerian, and Nigerian economies. They suggested that external
debt does not contribute to ecological sustainability in the tested countries. However,
most empirical studies imply that a research gap exists in examining the external debt and
LCF linkage.

2.5. Research Gap

The preceding discussion in the empirical literature focused on carbon emission (CO2 )
and ecological footprint to capture environmental sustainability using different periods
(e.g., 1970 to 2015, 1995 to 2017). These proxies cover the demand part of environmental
sustainability and exclude the supply part. Recently, some studies have used LCF to capture
environmental sustainability, which takes into account both the supply sides of nature
Sustainability 2024, 16, 1037 6 of 17

and the demand sides of ecological sustainability. Most empirical literature has ignored
the connection between external debt and LCF. Thus, the present study aims to fill the
research gap by examining the impact of external debt on the LCF for the first time in the
case of Brazil. Likewise, this paper aims to present novel empirical evidence by applying
the AARDL approach using two different periods, from 1990 to 2021 and from 1970 to 2021.

3. Data and Methodology

3.1. Data and Tested Model
To assess the impacts of economic growth, renewable energy, NRR, FDI, and external
debt on the LCF in Brazil, this study uses annual data from 1970 to 2021. In this context,
we perform the tested model by taking into account the novel LCF indicator to measure
environmental sustainability in the tested country. The tested model of this analysis is
formulated as follows:

lnLCFit = β0 + δ1 lnEGit + δ2 lnRECit + δ3 lnNRit + δ4 lnFDIit + δ5 lnEDit + uit (1)

where LCF t denotes the load capacity factor indicator, lnEG t denotes economic growth
(GDP), lnREC t denotes renewable energy consumption per capita, and lnNRt denotes the
natural resources as a proportion of GDP. lnFDI t denotes foreign direct investment net
outflows and lnED t represents total external debt stocks (% of GDP). A description of the
selected variables in this study and data sources is in Table 1. In addition, Table 2 shows
the variables’ descriptive statistics, including the mean, maximum, median, and minimum
values. Furthermore, Figure 2 shows the selected variables in this study in plots.

Table 1. Description of the selected variables.

Sign Variable Measurement Source

The proxy was obtained from the
division biocapacity (per capita) Footprint
LCF Load capacity factor
and EF (global hectares Network—2023
per capita)
GDP per capita (constant
EG Economic growth World Bank—2023
2015 USD)
Renewable energy Consumption of renewable Our World in
REC
consumption energy per capita Data—2023
NRR Natural resources Per capita (constant 2015 USD) World Bank—2023
Foreign direct FDI net inflows as a percentage Our World in
FDI
investment of the country’s GDP Data—2023
External debt stock as a
ED External debt World Bank—2023
percentage of the country’s GDP

Table 2. Findings of descriptive statistics.

LCF EG REC NR FD ED
Mean 1.442 8.792 1.484 0.833 −1.790 −1.325
Median 1.415 8.783 1.618 0.848 −1.976 −1.301
Maximum 2.072 9.149 2.276 1.559 0.955 −0.694
Minimum 1.058 8.177 0.223 −0.052 −6.191 −1.956
Std. Dev. 0.276 0.223 0.493 0.409 1.398 0.340
 Mean 1.442 8.792 1.484 0.833 −1.790 −1.325
Median 1.415 8.783 1.618 0.848 −1.976 −1.301
Maximum 2.072 9.149 2.276 1.559 0.955 −0.694
Minimum 1.058 8.177 0.223 −0.052 −6.191 −1.956
Sustainability 2024, 16, 1037 Std. Dev. 0.276 0.223 0.493 0.409 1.398 0.3407 of 17

LCF GDP

2.2 9.2

2.0 9.0

1.8 8.8

1.6 8.6

1.4 8.4

1.2 8.2

1.0
70 75 80 85 90 95 00 05 10 15 20 8.0
70 75 80 85 90 95 00 05 10 15 20
REC NRR
2.4 1.6

2.0 1.2

1.6
0.8
1.2
0.4
0.8

0.4 0.0

0.0 -0.4
70 75 80 85 90 95 00 05 10 15 20 70 75 80 85 90 95 00 05 10 15 20
ED FDI
-0.6 2
1
-0.8
0
-1.0
-1
-1.2 -2
-1.4 -3
-4
-1.6
-5
-1.8
-6
-2.0 -7
70 75 80 85 90 95 00 05 10 15 20 70 75 80 85 90 95 00 05 10 15 20

Figure
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Theselected
selectedvariables
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inplots.
plots.

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ecological sustainability.
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might beexplained
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Economieswith
Economies with abundant
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benefitfromfromfast
fast economic
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Hence, usingthese
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positively affect ecological
ecologicalsustainability.
sustainability. In contrast, the ecological
In contrast, sustainability
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sustainability is
by careless natural resources exploitation. Thus, examining the influence
harmed by careless natural resources exploitation. Thus, examining the influence of nat- of natural re-
sources
ural on ecological
resources sustainability
on ecological is essential.
sustainability On the other
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On the FDIhand,
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been identified
has beenasidentified
a significant
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significant factor ineconomic
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and financial Hence, these resources
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Hence, these resources can support technological
significantly sup-
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port financialdiffusion,
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modeling.
and On the other
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modeling. On the debt
othercan play
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a significant role in economic development, which in turn may affect
external debt can play a significant role in economic development, which in turn may the level of investment,
such as
affect theinfrastructure and industry
level of investment, suchinvestment. Subsequently,
as infrastructure this may
and industry affect the level
investment. Subse-of
energy and environmental quality. Thus, using these factors to evaluate
quently, this may affect the level of energy and environmental quality. Thus, using these environmental
sustainability
factors is appropriate.
to evaluate However,
environmental we selectedisvariables
sustainability for theHowever,
appropriate. present research based
we selected
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the present research based on the UN SDGs.
The coefficient sign of δ1 is predicted to be positive [18]; thus, an improvement in the
of 𝛿
The coefficient sign 1 is predicted to be positive [18]; thus, an improvement in
economic expansion will increase the LCF. The δ2 is predicted to be positive. Renewable
the economic expansion will increase the LCF. The 𝛿 2 is predicted to be positive. Re-
energy sources are green and clean sources, and they have a positive role in promoting
sustainable development.
δ3 is expected to be positive due to the country having abundant green natural re-
sources [30]. δ4 is predicted to be negative because the FDI of the country fails to promote
green technologies and investment [37]. The δ5 is expected to be negative because an in-
crease in the external debt in turn may have a positive impact on economic expansion [12].
This will lead to a rise in fossil fuel consumption and a decrease in LCF.
Sustainability 2024, 16, 1037 8 of 17

3.2. Stationary and Cointegration Assessments

This study used the Augmented Dickey–Fuller (ADF) unit-root test to evaluate the
stationarity of the tested time-series data. However, it is a well-known issue that classical
unit-root tests, such as ADF test, do not consider structural-break dates. To overcome this
issue, this study uses the Perron–Vogelsang (PV) test, which was proposed by Perron and
Vogelsang [39]. This test takes into account one endogenous structural-break date.
The fractional integration in the examined data can cause significant problems in the
empirical tests. To fix this issue, several empirical studies have used the ARDL bounds test
as introduced by Pesaran et al. (2001) [40] to evaluate the cointegration among the selected
time series. In this test, the examined variables are not required to be equally stationary and
integrated. In this approach, the cointegration hypothesis will be accepted if Fstatistic exceed
the Pesaran et al. (2001) [40] critical values. McNown et al. [41] upgraded this approach by
considering the bootstrap simulations issue to provide more accurate findings; however,
the authors illustrated that it was insufficient to affirm the cointegration only by using the
value of the Fstatistic for the overall assessment and for the Tstatistic on a lagged dependent
variable. In this context, McNown et al. [41] suggested an additional tstatistic or Fstatistic on
the lagged independent variables to upgrade the ARDL assessment to distinguish among
cases of cointegration or degenerate cases. Sam et al. (2019) [22] upgraded the model
and introduced the Fstatistic CV for the independent variable to evaluate cointegration.
Additionally, cointegration according to the Sam et al. (2019) [22] approach will be evaluated
using the Tstatistic and Fstatistic overall value which can be derived from Pesaran et al. [40]
and Narayan [42]. The upgraded ARDL is formulated as follows:

∆lnLCFt = β0 + ∑ni=1 y1 ∆lnLCF2t−j + ∑ni=1 y2 ∆lnEGt−j + ∑ni=1 y3 ∆lnRECt−j + ∑ni=1 y4 ∆lnNRt−j +

∑i=1 y5 ∆lnFDIt−j + ∑ni=1 y5 ∆lnEDt−j + ∂1 lnLCFit−i + ∂2 lnEGt−1 + ∂3 lnRECt−1 + ∂4 lnNRt−1 + ∂5 lnFDIt−1 +
n
(2)
∂6 lnEDt−1 + ωECTt−1 + ε1t
In Equation (2), ∆ is the first-difference operator. lnLCF, lnEG, lnREC, lnNR, lnFDI,
and lnED are the explored variables in the log; n is the lagged optimal. ε1t denotes
white noise. β0 is the constant term. y1 , y2 , y3 , y4 , y5 , y6 represent the estimated coeffi-
cients in the short period. ∂1 , ∂2 , ∂3 , ∂4 , ∂5 , ∂6 represent the estimated coefficients in the
long period. ECTt−1 is the error-correction term, which is predicted to be “a negative
and significant sign” (less than −1) to confirm the adjustment velocity from “the con-
vergence” case to the equilibrium level [40]. The lag length optimal is selected based
on the Akaike information criterion. In this assessment model, three hypotheses will
be investigated.
First, the null hypothesis (H0 ) and alternative hypothesis (H 1 ) for the overall Ftest on
all variables are:
H0 ; α1 = α2 = α3 = α4 = α5 = α6 = 0
H1 ; α1 ̸= α2 ̸= α3 ̸= α4 ̸= α5 ̸= α6 ̸= 0
Second, the H0 and H1 hypotheses for Tstatistic on a lagged dependent variable are:

H0 ; α 2 = 0
H1 ; α 2 ̸ = 0

Third, the H0 and H1 hypotheses for the F test on a lagged independent variable are:

H0 ; α 2 = α 3 = α 4 = α 5 = α 6 = 0
H1 ; α 2 ̸ = α 3 ̸ = α 4 ̸ = α 5 ̸ = α 6 ̸ = 0

Moreover, this paper employes the Bayer and Hanck cointegration [43] approach to
enhance the AARDL findings. This approach combines cointegration techniques: Engle
and Granger [44], Johansen, [45], Boswijk [46], and Banerjee [47] assessments. Additionally,
F
this approach includes the Fisher statistic to present powerful evidence to reinforce the level
of cointegration. This approach is structured as follows:
Sustainability 2024, 16, 1037 9 of 17



EGt − JOHt = −2 I N ( PEGt ) + PJOHt (3)


EGt − JOHt − BOt − BDMt = −2 I N ( PEGt ) + PJOt + ( PBOt ) + ( PBAt ) (4)
where EGt − JOHt − BOt − BDMt are cointegration assessments. In this approach, H1 of
F
cointegration level will be significantly dismissed if the Fisher statistic values exceed the
values of the Bayer and Hanck approach.
In addition, the current study employed some assessments to evaluate the stability of
the tested model. In this regard, the study uses the Breusch–Pagan–Godfrey and ARCH
assessments to confirm there were no serial correlations in the tested model. Additionally,
this paper used the Normality and Ramsay assessments to verify the stability of tested
model. In addition, the existing paper employed the fully modified (OLS) and Canonical
Cointegrating Regression (CCR) as proposed by Phillips and Hansen (1990) [48] and
Par (1992) [49], respectively, to affirm the ARDL findings in the long run. However, the
robustness tests aim to overcome the unbiased, endogeneity, and serial correlation issues in
the examined empirical models.

4. Empirical Findings
In the present study, we employed ADF and PV assessments with one date of structural
break (D-SB) to determine the order of integration among the selected variables and avoid
any erroneous findings. The findings of these tests are displayed in Table 3, which shows
that all the selected variables are integrated and stationary after the first difference. By
confirming the stationary issue, we can proceed to evaluate the cointegration issue in the
empirically tested model.

Table 3. PV and ADF test findings.

Variables at Level PV ADF

TestStatistics D − SB TestStatistics
LCF −3.545 1993 −3.333
EG −3.643 1980 −2.742
REC −2.765 2016 −2.721
NR −3.915 1998 −2.148
FDI −1.646 1997 −1.573
ED −3.924 2006 −1.456
First difference
LCF −6.291 *** 1979 −5.379 ***
EG −5.643 *** 1980 −4.742 ***
REC −5.727 *** 2020 −4.130 ***
NR −8.666 *** 1996 −8.287 ***
FDI −14.419 *** 2012 −13.308 ***
ED −6.101 *** 2005 −5.233 ***
*** implies the significance of the selected variables at 1 percent. “D-SB” denotes the structural-break dates.

We tested the association among the variables using three different models. In the
first model, we used the data period from 1970 to 2021 to evaluate the relationship among
(EG, REC, NRR, FDI, ED) and (LCF). In the second model, we used the data period from
1970 to 2021 to evaluate the relationship among (EG, NRR, FDI, ED) and (LCF). In the
third model, we used the data period from 1990–2021 to evaluate the relationship among
(EG, REC, NRR, FDI, ED) and (LCF). To evaluate the cointegration level among the tested
variables, the study used the novel augmented ARDL technique. The findings of these
tests as presented in Table 4 show that the Fstatistic value for the overall assessment and for
the Tstatistic on a lagged dependent variable, and Fstatistic CV for the independent variable
exceed the CV of these tests as presented by Pesaran et al. (2001) [40], Narayan [42], and
Sam et al. (2019) [22], respectively. Thus, these findings present evidence indicating that
the level of cointegration among the focused variables is valid.
Sustainability 2024, 16, 1037 10 of 17

To confirm the ARDL outcomes, we employed the Bayer and Hanck cointegration
(2013) [43] approach. The outcomes of this approach (Table 5) show that the computed
F-statistic value exceeded the tabulated F-statistics in both “EGT − JOT” and “EGT − JOT-
BOT − BAT”. Thus, these test findings affirm the robustness of the AARDL test.
Further, the J-B test (Table 6) affirms that the examined model has normal distribution,
while the findings of the Ramsay, ARCH, and heteroskedasticity assessments (Table 6) af-
firm that the tested empirical models are stable and free from autocorrelation. Additionally,
the CUSUM and CUSUMsq tests (Figures 3–5) indicated that the tested empirical model is
statistically stable.

Table 4. The findings of A-ARDL approach.

Test Stat
F Overall t Dependent F Independent
Model I 5.403 −4.891 5.391
CV 1% 5% 10%
Statistics I(0) I(1) I(0) I(1) I(0) I(1) Reference
Foverall 3.41 4.68 2.62 3.79 2.26 3.35 Narayan (2005) [42]
Tdependent −3.43 −4.79 −2.86 −4.19 −2.57 −3.86 Pesarsan (2001) [40]
Findependent 3.05 5.02 2.24 3.90 1.86 3.39 Sam et al. (2019) [22]
Model II 4.912 −3.931 4.875
CV 1% 5% 10%
Statistics I(0) I(1) I(0) I(1) I(0) I(1) Reference
Foverall 3.74 5.06 2.86 4.01 2.45 3.52 Narayan (2005) [42]
Tdependent −3.43 −4.60 −2.86 −3.90 −2.57 −3.66 Pesaran (2001) [40]
Findependent 3.58 5.02 2.39 4.18 1.96 3.58 Sam et al. (2019) [22]
Model III 8.828 −4.834 10.465
CV 1% 5% 10%
Statistics I(0) I(1) I(0) I(1) I(0) I(1) Reference
Foverall 3.41 4.68 2.62 3.79 2.26 3.35 Narayan (2005) [42]
Tdependent −3.43 −4.79 −2.86 −4.19 −2.57 −3.86 Peseran (2001) [40]
Findependent 3.05 5.02 2.24 3.90 1.86 3.39 Sam et al. (2019) [22]

Table 5. The findings of the Bayer and Hanck test.

Fisher F-Statistic
MODEL I EG-J EG-J-Ba-Bo
55.264 114.610
CV at 5% 10.419 19.888
MODEL II EG-J EG-J-Ba-Bo
18.428 35.215
CV at 5% 10.576 20.143
MODEL III EG-J EG-J-Ba-Bo
55.322 106.808
CV at 5% 10.419 19.888
 MODEL II 18.428
EG-J 35.215
EG-J-Ba-Bo
18.428 35.215
CV at 5% 10.576
18.428 20.143
35.215
CV at 5% 10.576 20.143
MODEL
CV at 5% III EG-J
10.576 EG-J-Ba-Bo
20.143
MODEL III EG-J EG-J-Ba-Bo
MODEL III 55.322
EG-J 106.808
EG-J-Ba-Bo
Sustainability 2024, 16, 1037 55.322 106.808 11 of 17
CV at 5% 10.419
55.322 19.888
106.808
CV at 5% 10.419 19.888
CV at 5% 10.419 19.888
16 1.4
16 1.4
1.2
12
16 1.4 1.2
12 1.0
8 1.2 1.0
12 0.8
8
4 1.0 0.8
8 0.6
4
0 0.8 0.6
4 0.4
0 0.6 0.4
-4 0.2
0
-4 0.4 0.2
-8 0.0
-4 0.2 0.0
-8
-12 -0.2
-8 0.0-0.2
-12 -0.4
-16
-12 -0.2-0.4 84 86 88 90 92 94 96 98 00 06 08 14 16 18
-16 84 86 88 90 92 94 96 98 00 06 08 14 16 18
84 86 88 90 92 94 96 98 00 06 08 14 16 18 -0.4 84 86 88 90 92 94 96 98 00 06 08 14 16 18
-16 CUSUM of Squares 5% Significance
84 86 88 90 92 94 96 CUSUM
98 00 5% Significance
06 08 14 16 18 84 86 88 90 92 94 96 98 00 06 08 14 16 18
CUSUM 5% Significance CUSUM of Squares 5% Significance
CUSUM of Squares 5% Significance
Figure CusumCUSUM
Figure3.3.Cusum and
5% Significance
andCusum
Cusum Squaresmodel
Squares modelI.I.
Figure 3. Cusum and Cusum Squares model I.
Figure
20
3. Cusum and Cusum Squares model I. 1.4
20 1.4
1.2
15
20 1.4 1.2
15 1.0
10
15 1.2 1.0
10 0.8
5 1.0 0.8
10 0.6
5
0 0.8 0.6
5 0.4
0
-5 0.6 0.4
0 0.2
-5 0.4 0.2
-10 0.0
-5
-10 0.2 0.0
-15 -0.2
-10 0.0-0.2
-15
-20 -0.4
-15 85 90 95 00 05 12 15 -0.2-0.4 85 90 95 00 05 12 15
-20
-20 85 90 95 00 05 12 15 -0.4 85 90 95 00 05 12 15
85 90 CUSUM
95 005% Significance
05 12 15 85 90 CUSUM
95 of Squares 00 055% Significance
12 15
CUSUM 5% Significance CUSUM of Squares 5% Significance

Figure 4. CusumCUSUM 5% Significance

and Cusum Squares model II. CUSUM of Squares 5% Significance

Figure 4.
Figure 4. Cusum
Cusum and
and Cusum
Cusum SquaresSquares model
model II.
II.
Figure 4. Cusum and Cusum Squares model II.
10.0 1.6
10.0 1.6
7.5
10.0 7.5 1.6 1.2
5.0 1.2
7.5 5.0
2.5 1.2 0.8
5.0 2.5
0.0 0.8
2.5 0.0 0.8 0.4
-2.5
0.0-2.5 0.4
-5.0 0.4 0.0
-2.5-5.0
-7.5 0.0
-5.0-7.5
-10.0 0.0 -0.4
-7.5
-10.0 06 07 08 12 13 14 15 16 17 18 19 06 07 08 12 13 14 15 16 17 18 19
-0.4
-10.0 06 07 08 12 13 14 15 16 17 18 19 06 07 08 12 13 14 15 16 17 18 19
-0.4
06 07 08 12 13CUSUM14 5% Significance
15 16 17 18 19 06 07 08 12 CUSUM
13 of Squares
14 15 5%16Significance
17 18 19
CUSUM 5% Significance CUSUM of Squares 5% Significance
CUSUM 5% Significance CUSUM of Squares 5% Significance
Figure 5. Cusum and Cusum Squares model III.
Figure 5. Cusum and Cusum Squares model III.
Figure
Figure 5. Cusum and Cusum Squaresmodel
5. Cusum and Cusum Squares modelIII.
III.
Table 6. Diagnostic tests.
Table 6. Diagnostic tests.
Table 6.6.Diagnostic
Diagnostictests.
tests.
Test/Models
Table Model II Model II (PV) Model II (PV)
Test/Models Model II Model II (PV) Model II (PV)
Heteroskedasticity assessment (White test)Model
Test/Models 0.977 II(0.48) Model
1.228 II (0.31) 0.957 II
(PV) Model (0.53)
(PV)
Heteroskedasticity
Test/Models assessment (White test)Model 0.977II (0.48) Model1.228II(0.31)
(PV) 0.957 (0.53)
Model II (PV)
(Breusch–Godfreyassessment
Heteroskedasticity assessment) (White test) 0.977 1.629 (0.20) 1.228
(0.48) 0.003 (0.94) 0.957
(0.31) 0.058 (0.81)
(0.53)
(Breusch–Godfrey assessment)
Heteroskedasticity assessment (White test) 0.977 1.629 (0.20) 1.228
(0.48) 0.003 (0.94) 0.957
(0.31) 0.058(0.53)
(0.81)
Normality assessment
(Breusch–Godfrey assessment) 0.659
1.629 (0.34) 0.003
(0.20) 1.086 (0.58) 0.058
(0.94) 0.736 (0.69)
(0.81)
(Breusch–Godfrey
Normality assessment)
assessment 1.629 (0.20)
0.659 (0.34) 0.003 (0.94)
1.086 (0.58) 0.0580.736(0.81)
(0.69)
Ramsey
Normality
Normality Reset assessment
assessment
assessment 2.112
0.659
0.659 (0.05) 1.086
(0.34)
(0.34) 0.564
1.086 (0.57) 0.736
(0.58)
(0.58) 0.887
0.736 (0.39)
(0.69)
Ramsey Reset assessment 2.112 (0.05) 0.564 (0.57) 0.887(0.69)
(0.39)
Ramsey
Ramsey Reset
Resetassessment
assessment 2.112(0.05)
2.112 (0.05) 0.564 0.564(0.57)
(0.57) 0.887
0.887(0.39)
(0.39)
The findings of the ARDL test are displayed in Table 7 The findings from models I,
The findings of the ARDL test are displayed in Table 7 The findings from models I,
II, The
and findings
III show ofa positive
the association between economic growth and LCF.
fromThe findings
TheIIIfindings
II, and show aof theARDL
ARDL
positive
test
testare
are displayed
association displayed in
in Table
between economicTable 77growth
The findings
The findings from
and LCF.
models
models
The I,I,II,
findings
II,and
andIIIIIIshow
show a positive
a positive association
association between
between economic
economic growth
growth and and
LCF.LCF. The findings
The findings clearly
demonstrate that an increase in GDP positively improved the environmental sustainability
in Brazil over the tested period. A 1 percent improvement in economic growth in Brazil
led to an upsurge in LCF by 0.238–0.418% in the short term and 0.465–0.720% in the long
term. The outcomes from the robust models of FMOLS and CCR are displayed in Tables 8
and 9. The outcomes of these tests show a positive association between EG and LCF. A one
percent increase in economic expansion increases REC by 0.071–0.631%. These outcomes
support the findings of the ARDL method.
Sustainability 2024, 16, 1037 12 of 17

Table 7. Outcomes of the ARDL test.

Tests Model I Model II Model III

Variables Coefficient T stat PV Coefficient T stat PV Coefficient T stat PV
Short run
EG −0.267 ** −2.212 0.03 −0.238 ** −2.143 0.03 −0.418 ** −2.380 0.03
REC 0.451 ** 2.523 0.02 − − − 0.578 *** 3.718 0.00
NR 0.065 *** 3.704 0.00 0.059 *** 3.449 0.00 0.070 *** 3.881 0.00
FDI −0.033 *** −4.103 0.00 −0.023 *** −3.163 0.00 −0.036 *** −4.105 0.00
ED −0.093 ** −2.233 0.03 −0.055 ** −2.339 0.02 −0.112 * −2.184 0.05
Long run
EG −0.465 *** −11.19 0.00 −0.539 ** −2.662 0.01 −0.720 *** −16.62 0.00
REC 0.038 * 1.761 0.08 − − − 0.140 * 2.021 0.07
NR 0.114 *** 28.411 0.00 0.135 *** 3.934 0.00 0.121 *** 14.601 0.00
FDI −0.057 *** −16.521 0.00 −0.053 *** −3.041 0.00 −0.062 *** −16.523 0.00
ED −0.162 *** −7.747 0.00 −0.124 *** −3.368 0.00 −0.194 *** −7.603 0.00
ECTt−1 −0.575 *** −6.492 0.00 −0.441 *** −5.874 0.00 −0.580 *** −10.312 0.00
***, ** and * imply the significance of the selected variables at 1, 5, and 10% levels.

Table 8. Outcomes of the FM-OLS test.

Tests Model I Model II Model III

Variables Coefficient T stat PV Coefficient T stat PV Coefficient T stat PV
EG −0.628 *** −16.72 0.00 −0.567 *** −6.864 0.00 −0.333 *** −15.991 0.00
REC 0.075 * 1.768 0.08 − − − 0.136 *** 6.757 0.00
NRR 0.058 *** 10.19 0.00 0.063 *** 4.695 0.00 0.044 *** 16.074 0.00
FDI −0.012 *** −6.057 0.00 −0.008 * −1.807 0.07 −0.011 *** −12.541 0.00
ED −0.107 *** −8.837 0.00 −0.138 *** −10.122 0.00 −0.044 *** −4.017 0.00
***and * imply the significance of the selected variables at 1 and 10% levels.

Table 9. Outcomes of CCR test.

Tests Model I Model II Model III

Variables Coefficient T stat PV Coefficient T stat PV Coefficient T stat PV
EG −0.631 *** −15.611 0.00 0.0751 * 1.768 0.08 −0.512 *** −10.026 0.00
REC 0.069 * 1.740 0.09 − − − 0.277 * 1.850 0.08
NRR 0.058 *** 10.310 0.00 0.067 *** 7.231 0.00 0.062 *** 13.441 0.00
FDI −0.012 *** −4.600 0.00 −0.006 * −1.722 0.09 −0.025 *** −10.081 0.00
ED −0.105 *** −8.196 0.00 −0.1289 *** −12.30 0.00 −0.142 *** −7.346 0.00
*** and * imply the significance of the selected variables at 1, and 10% levels.

In contrast, the outcomes from models I and III illustrate a positive and significant
interconnection between REC and LCF. An increase in REC by 1% promotes the LCF by
0.451–0.578% in the short term and by 0.038–0.140% in the long term. These findings affirm
that REC use has a positive role in enhancing ecological sustainability. Additionally, the
study shows that NRR positively impacts LCF. According to the findings, a one percent
improvement in the NRR promotes ecological sustainability in the country by 0.059–0.070%
in the short term and 0.114–0.135% in the long term. The robustness findings from FMOLS
and CCR also affirm the relations among REC, neutral resources, and LCF.
On the other hand, the outcomes of the tested models (I, II, and III) show that a
significant increase in the FDI negatively influences LCF. The findings illustrated that a
one percent increase reduced ecological quality by 0.023–0.036% in the short term and by
0.053–0.062% in the long term. In addition, the outcomes from the ARDL approach in
models I, II, and III confirm the significant link between external debt and LCF in Brazil.
An increase in the level of external debt by 1% leads to a decrease in the level of REC by
0.055–0.112% in the short term and by 0.124–0.194% in the long term.
 On the other hand, the outcomes of the tested models (I, II, and III) show that a sig-
nificant increase in the FDI negatively influences LCF. The findings illustrated that a one
percent increase reduced ecological quality by 0.023–0.036% in the short term and by
0.053–0.062% in the long term. In addition, the outcomes from the ARDL approach in
Sustainability 2024, 16, 1037 models I, II, and III confirm the significant link between external debt and LCF in Brazil. 13 of 17
An increase in the level of external debt by 1% leads to a decrease in the level of REC by
0.055–0.112% in the short term and by 0.124–0.194% in the long term.
However, the FMOLS
However, FMOLSand andCCRCCR outcomes
outcomes reveal negative
reveal and significant
negative links among
and significant links
FDI, external
among debt, and
FDI, external LCF.
debt, andThese
LCF. findings presentpresent
These findings empirical evidence
empirical showing
evidence that an
showing
increase
that in external
an increase debt adversely
in external affects environmental
debt adversely sustainability.
affects environmental AccordingAccord-
sustainability. to these
results,
ing a one
to these percent
results, increase
a one in FDI
percent led toinaFDI
increase decrease
led toina the LCF by
decrease in 0.006–0.025% and a
the LCF by 0.006–
one percent increase in the external debt led to a reduction in the LCF by
0.025% and a one percent increase in the external debt led to a reduction in the LCF by0.044–0.142%.
Figure 6 shows
0.044–0.142%. the summary
Figure of the
6 shows the study findings.
summary of the study findings.

EG

-
REC
NR
+ +
LCF

ED FDI

- -
Figure
Figure6.6.The
Thesummary
summaryofofthe
thestudy
studyfindings.
findings.

5.5.Discussion
Discussion
Thissection
This sectionpresents
presentsaadiscussion
discussionofofthethefindings
findingsononthe
theinterrelationships
interrelationshipsamong
among
EG, REC, NR, FDI, ED, and LCF in the case of Brazil utilizing datasets from 1970
EG, REC, NR, FDI, ED, and LCF in the case of Brazil utilizing datasets from 1970 to 2021. to 2021.
The present work utilized an advanced AARDL approach to assess the correlation among
The present work utilized an advanced AARDL approach to assess the correlation among
the focused variables. The findings illustrated that economic growth and FDI negatively
the focused variables. The findings illustrated that economic growth and FDI negatively
affected the level of environmental sustainability by decreasing the LCF. Significant eco-
affected the level of environmental sustainability by decreasing the LCF. Significant
nomic development results from a rise in supply and thorough energy use. This suggests
economic development results from a rise in supply and thorough energy use. This
that economic development policies in Brazil are not linked with the goal of ecological
suggests that economic development policies in Brazil are not linked with the goal of
sustainability. However, this outcome is explained by the fact that the GDP in Brazil has
ecological sustainability. However, this outcome is explained by the fact that the GDP in
increased significantly in recent decades from USD 17 billion in 1960 to USD 1.60 trillion in
Brazil has increased significantly in recent decades from USD 17 billion in 1960 to USD
2020. Additionally, these findings could be attributed to the fact that most of the foreign
1.60 trillion in 2020. Additionally, these findings could be attributed to the fact that most
investment in this country is used to promote fossil fuel consumption. The paper findings
of the foreign investment in this country is used to promote fossil fuel consumption. The
affirm that the PHV hypothesis is valid in the case of Brazil, implying that an increase
paper findings affirm that the PHV hypothesis is valid in the case of Brazil, implying that
in FDI will lead to an increase in ecological pollution in the country by mitigating the
an increase
level in These
of LCF. FDI will lead toare
findings aninincrease in Adebayo
line with ecologicaland
pollution
Samourin[50],
the country by miti-
who assessed the
connection between economic growth and LCF in the case of Brazil. The findings show
that economic growth mitigates environmental sustainability while the REC promotes it.
Furthermore, Doytch (2020) [51] assessed the impact of FDI on the EF in selected developing
and developed economies. The authors suggested that FDI increases the EF in the tested
countries and affirmed that the PHV hypothesis is valid in those countries. The findings
affirm the absence of stringent environmental regulations and rules in Brazil. Hence, these
findings show that the country failed to use FDI growth to promote environmental quality.
The government of Brazil needs to design new policies to promote ecological quality using
the economic and financial development channels.
Conversely, the findings showed that NR, REC, and LCF have a strong positive
correlation over the tested period. Thus, an increase in REC positively affected the level
Sustainability 2024, 16, 1037 14 of 17

of environmental sustainability. These findings align with Samour et al. (2023) [52] who
evaluated the impact of REC on EF in the case of the BRICS economies and suggested that
REC positively contributes to ecological sustainability.
Additionally, the findings showed that NR and LCF have a strong positive correlation.
Thus, an expansion in natural resources utilization boosts ecological sustainability in Brazil
by promoting energy-efficient and environment-friendly technologies. These outcomes
align with Zhao et al. (2023) [53], who suggested that NRR has a positive effect on ecological
sustainability in the case of Brazil. In contrast, the findings are not line with Li et al.
(2023) [54] who used the CS-ARDL approach and found that an increase in NRR has
a negative impact on LCF in the case of the BRICS countries. This finding could be
attributed to the fact that Brazil is a country with an abundance of natural resources such as
minerals, water, agriculture, energy, and biodiversity. Moreover, the country has the largest
installed hydropower capacity, controlling around 7% of the world’s freshwater supplies.
Hydropower sources primarily generate electricity in the country, accounting for around
68% of its total electricity generation in 2023. Furthermore, the country has the greatest
installed wind power capacity in the Latin America region and the world’s best conditions
for using this energy sources. The findings of this study suggest that the country carefully
managed these sources through sustainable practices to support their long-term viability
and environmental protection.
On the other hand, the outcomes demonstrate that external debt negatively affects the
environmental quality in the country by decreasing the level of the LCF. These outcomes
align with Bese [14] who assessed the external debt and carbon emissions in the case
of China and suggested that an increase in the external debt led to decreased ecological
sustainability in the tested country. However, the results are not in line with (Sadiq et al.
2022) [13], who found that external debt promoted ecological sustainability in the tested
countries from 1990 to 2019. Unlike these studies, the current study presents the first
empirical evidence on the linkage between external debt and LCF as a new indicator to
capture ecological quality. The study outcomes may be attributed to the fact that Brazil’s
external debt rose significantly over the last five decades, from USD 494.63 billion in 1970
to USD 4251 billion in 2020. However, this paper suggests that the significant increase in
external debt in Brazil was used to finance non-green consumption and investment. Subse-
quently, this adversely affected the country’s environmental sustainability; this suggests
that policymakers in Brazil must use external finance to support green energy projects to
achieve environmental sustainability.

6. Conclusions and Policy Recommendations

6.1. Conclusions
Brazil is one of the most advanced countries in Latin America with respect to the
development of the renewable energy sector. Despite this fact, oil and natural gas are still
the country’s primary sources of energy, meeting more than 50% of energy consumption.
On the other hand, the country has faced a significant increase in ecological emissions over
the last six decades, while economic growth and external debt have rapidly risen during the
same period. Thus, environmental sustainability is still the main challenge in the country.
The main objective of this study was to assess the impact of external debt, FDI, economic
growth, REC, and NRR on the LCF. To the best of the authors’ knowledge, no empirical
work has assessed the link between external debt and LCF. Consequently, the present study
is the first work that aims to explore this link using the augmented ARDL technique.
The findings from the ARDL approach show that GDP negatively influence ecological
sustainability in Brazil by decreasing the LCF. Additionally, the findings show that FDI neg-
atively influence LCF in the country, whereas REC positively influences LCF. Furthermore,
the findings show that NRR increases the level of LCF. These findings confirm that REC
and NRR positively influence environmental sustainability in the country. The country has
faced a significant increase in the level of ecological emissions over the last six decades,
while economic growth has rapidly increased during the same period. Conversely, the
Sustainability 2024, 16, 1037 15 of 17

outcomes of this paper show that an increase in external debt has an adverse influence on
environmental sustainability by promoting LCF. Unlike the previous empirical studies, the
current work presents the first empirical evidence on the linkage between external debt
and LCF as a new indicator to capture ecological quality. The findings of this study affirm
that external debt has a negative influence on the ecological sustainability of the country.
The external debt in Brazil increased to USD 4251 billion by the end of 2020, its highest
level since 1970. The country failed to use this debt to finance green energy investment and
production. Thus, it is highly important that policymakers in Brazil utilize the borrowed
funds for green investment to achieve ecological sustainability.

6.2. Implications
The study presents three valuable findings and recommendations to policymakers
in Brazil. First, the study shows that economic growth and FDI negatively influence the
LCF. These findings suggest that the country failed to use economic growth and FDI to
achieve environmental sustainability. Therefore, the country must design new policies
to promote environmental policies to maintain the environment in the country. Second,
the findings demonstrate that REC and NRR have a positive role in Brazil’s ecological
sustainability by increasing the level of LCF. The study suggests that policymakers in Brazil
should encourage research and development into low-pollution technologies. Additionally,
they must use more financial incentives such as low taxes or interest rates on green energy
investments. Furthermore, the country must carefully manage natural resources through
sustainable practices to support their long-term viability and environmental protection.
Hence, policymakers must use more new green policies to promote ecological quality
using green technologies and investment. With the possible benefits of external debt on
the economic development in Brazil, policymakers must use more policies to sustain the
external debt. In this context, the study recommends that policymakers should design
new green external policies to promote ecological quality by promoting green technologies
and investment policymakers must guarantee that external debts are used to finance green
energy and cleaner production. These policies would decrease the problems associated with
investing in green technologies that benefit future generations and mitigate the ecological
population effects.

6.3. Limitations and Future Work

This study aims to contribute to the extant literature by evaluating the effect of external
debt on the LCF, specifically for Brazil. The prime study limitation is that we used data
covering the period 1970 to 2021 due to the data availability of some of the tested variables.
In addition, we employed the AARDL method to study the connection between the selected
variables. However, future papers may use other techniques, such as nonlinear approaches,
to assess the effect of external debt on the LCF.

Author Contributions: Methodology, A.S.; Software, A.S.; Formal analysis, A.S.; Writing—original
draft, S.H.S.; Writing—review & editing, D.H.A. All authors have read and agreed to the published
version of the manuscript.
Funding: This research received no external funding.
Institutional Review Board Statement: Not applicable.
Informed Consent Statement: Not applicable.
Data Availability Statement: The data presented in this study are openly available in Footprint
Net-work 2023, World-Bank, and Our World in Data websites.
Conflicts of Interest: The authors declare no conflict of interest.
Sustainability 2024, 16, 1037 16 of 17

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