Wu Chen, Gabriel Victor
ABSTRACT High‐income economies continue to face structural tensions between technological progress, institutional performance and environmental sustainability. This study examines the determinants of ecological health (EH) in the G7 countries from 2000 to 2022, focusing on the roles of energy efficiency (EE), urbanization (URB), artificial intelligence (AI), foreign direct investment (FDI), institutional quality (IQ), and economic growth (EG). AI is incorporated through its interaction with FDI (AI × FDI) to assess whether digital capacity enhances the environmental contribution of external investment. Using a balanced panel and applying two‐step System GMM to address endogeneity, persistence and cross‐sectional dependence, the analysis is supported by FGLS robustness checks and Dumitrescu–Hurlin causality tests. The results identify EE as the strongest and most consistent driver of EH, while URB and AI exert significant negative pressures. FDI shows a positive effect only in the baseline model, and the AI × FDI interaction remains statistically insignificant, indicating that digitalization does not yet amplify the environmental value of investment flows in the G7. IQ and EG show limited short‐run effects under the dynamic specification. Causality results confirm predictive links from URB, AI, and EE to EH, with bidirectional feedback between URB and ecological conditions. Overall, the findings emphasize the central role of efficiency improvements and structural management in advancing ecological sustainability, while highlighting the need for stronger institutional and technological alignment to unlock digital–environmental synergies in advanced economies.