Assessing the impact of natural capital and innovation on sustainable development in developing countries

Natural capital is a central consideration for developing informed policies for economic growth and sustainable development; however, the proportion of human capital, natural capital, and produced capital in inclusive wealth has been rapidly evolving. These forms of capital may have varying impact on sustainable development compared with aggregate inclusive wealth. This study uses panel data from 53 developing countries covering 2011 to 2022 to analyze how human, natural, and produced capital impact sustainable development, including associated innovation. We apply multiple econometric algorithms for empirical analysis, including Bayesian linear regression, Bayesian truncated regression, and a frequentist approach. The results reveal that human capital, innovation, green energy, political stability, and the absence of violence positively impact countries’ sustainable development. In contrast, natural and produced capital negatively impact sustainable development. The findings indicate that additional investment in human capital and innovation, green energy adoption, natural resource conservation, and modernizing produced capital will advance sustainable development in developing countries.