Structural transformation, involving labor employment shifts between sectors, is crucial for economic development but often entails a trade-off between economic growth and environmental degradation, particularly when driven by the service sector. In this context, this study examines the role of structural transformation in the environmental degradation of 53 middle-income economies (i.e. 31 countries experience premature deindustrialization and 22 countries also experience non-premature deindustrialization) over the period from 1991 to 2021. Empirical findings indicate that the agriculture and service sectors help mitigate environmental degradation in both premature and non-premature deindustrialization-driven countries, while the industrial sector exacerbates it. Besides, economic growth, trade openness, and government expenditure increase environmental degradation in both set of countries. These results align with the environmental Kuznets curve, which suggests that initial environmental deterioration due to industrialization-driven growth is followed by recovery as countries advance agriculturally and in services, adopting eco-friendly practices. Policy implications include prioritizing sustainable growth in agriculture and services, implementing stringent environmental regulations for industry, and adopting comprehensive decoupling strategies like renewable energy and carbon pricing mechanisms to achieve economic and environmental harmony.
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