Tamazian, Artur and Rao, B. Bhaskara (2008): Do Economic, Financial and Institutional Developments Matter for Environmental Degradation? Evidence from Transitional Economies.
Download (162Kb) | Preview
Several studies have examined the relationship between environmental degradation and economic growth. However, most of them did not take into account financial developments and institutional quality. Moreover, Stern (2004) noted that there are important econometric weaknesses in the earlier studies, such as endogeneity, heteroscedasticity, omitted variables, etc. The purpose of this paper is to fill this gap in the literature by investigating the linkage between not only economic development and environmental quality but also financial development and institutional quality. We employ the standard reduced-form modelling approach to control for country-specific unobserved heterogeneity and GMM estimation to control for endogeneity. Our study considers 24 transition economies and panel data for 1993-2004. Our results support the EKC hypothesis while confirming the importance of both institutional quality and financial development for environmental performance. We also found that financial liberalization may be harmful for environmental quality if it is not accomplished in a strong institutional framework.
|Item Type:||MPRA Paper|
|Original Title:||Do Economic, Financial and Institutional Developments Matter for Environmental Degradation? Evidence from Transitional Economies|
|Keywords:||Environmental Degradation, Economic Development, Financial Development, Institutional Quality, EKC|
|Subjects:||Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q53 - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture; Natural Resources; Energy; Environment; Other Primary Products
P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P28 - Natural Resources; Energy; Environment
|Depositing User:||Artur Tamazian|
|Date Deposited:||26. Jan 2009 13:45|
|Last Modified:||11. Feb 2013 18:31|
Anderson, D., 1992. Economic growth and the environment. World Bank Policy Research Working Paper No. 979. The World Bank, Washington, DC.
Andrews, D., and Lu, B., 2001. Consistent Model and Moment Selection Procedures for GMM Estimation with Application to Dynamic Panel Data Models. Journal of Econometrics 101(1), 123–164.
Ang, B. W., and Liu, N., 2006. A cross-country analysis of aggregate energy and carbon intensities, Energy Policy, 34(15), 2398-2404.
Antle, J.M., Heidebrink, G., 1995. Environment and development: theory and international evidence. Economic Development and Cultural Changes 43(3), 603–625.
Arellano, M. and Bond, S., 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations, Review of Economic Studies, 58(2), 277-297.
Arellano, M. and Bond, S., 1998. Dynamic panel data estimation using DPD98 for GAUSS: a guide for users. Mimeo, Institute for Fiscal Studies, London.
Baltagi, B. H., Demetriades, P. and Law, S. H., 2007. Financial development, openness and institutions: evidence from panel data. Department of Economics, University of Leicester Discussion Paper No. 07/5.
Barbier, E. B., 1997. Introduction to the Environmental Kuznets Curve special issue, Environment and Development. Economic growth and the environment: whose growth? Whose environment? World Development 20(4), 481–496.
Birdsall, N., Wheeler, D., 1993. Trade policy and industrial pollution in Latin America: where are the pollution havens? Journal of Environment and Development 2(1), 137–149.
Blundell, R. and Bond, S., 1998. Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143.
Bond, S.R., Hoeffler, A. and Temple, J., 2001. GMM estimation of empirical growth models, CEPR Discussion Paper no. 3048.
Brambor, T., Clark, W. R., and Golder, M. 2006. Understanding Interaction Models: Improving Empirical Analyses, Political Analysis, 14(1), 63-82.
Chinn, M., Ito, H., 2008. A New Measure of Financial Openness. Journal of Comparative Policy Analysis, 10(3), 307-320.
Claessens, S., Feijen, E., 2007. Financial sector development and the millennium development goals. World Bank Working Paper No. 89. The World Bank.
Cline, W., 1992. The Economics of Global Warming. Institute for International Economics, Washington, DC.
Cole, M.A., Elliot, R.J.R., 2005. FDI and the capital intensity of ‘‘dirty’’ sectors: a missing piece of the pollution haven puzzle. Review of Development Economics 9 (4), 530–548.
Copeland, B., Taylor, M.S., 2004. Trade, growth and the environment. Journal of Economic Literature 42(1), 7–71.
Cropper, M., and Griffiths, C., 1994. The Interaction of Populations, Growth, and Environmental Quality. American Economic Review, 84(2), 250-254.
Dasgupta S., A. Mody, S. Roy, and D. Wheeler, 1995. Environmental Regulation and Development: A Cross-Country Empirical Analysis. Policy Research Working Paper 1448, Policy Research Department, World Bank Washington, DC.
Dasgupta, S., Hong, J.H., Laplante, B., Mamingi, N., 2004. Disclosure of environmental violations and stock market in the Republic of Korea. Ecological Economics 58(4), 759–777.
Dasgupta, S., Laplante, B., Mamingi, N., 2001. Pollution and capital markets in developing countries. Journal of Environmental Economics and Management 42 (3), 310–335.
DE Soysa, I. and Neumayer, E., 2005. False Prophet or Genuine Savior? Assessing the Effects of Economic Openness on Sustainable Development, 1980–1999. International Organization, 59(3), 731–772.
Dinda S., 2004. Environmental Kuznets Curve Hypothesis: A Survey, Ecological Economics, 49(4), 431-455.
Diwan, I., Shafik, N., 1992. Investment, technology and the global environment: towards international agreement in a world of disparities. In: Low, P.(Ed.), International Trade and the Environment. World Bank, Washington, DC.
EBRD (European Bank for Reconstruction and Development). Sustainability Report 2007. London: UK.
Eliste, P., and Fredriksson, P.G., 1998. Does Open Trade Result in a Race to the Bottom? Cross-Country Evidence, mimeo, The World Bank.
European Commission, 2008. The economic aspects of the energy sector in CIS countries, Economic Papers Nº 327, CASE (Centre for Social and Economic Research), Directorate-General for Economic and Financial Affairs, Brussels: Belgium.
Feridun, M., 2006. Impact of trade liberalization on the environment in developing countries: the case of Nigeria, MPRA Paper no. 731.
Frankel, J., Romer, D., 1999. Does trade cause growth? The American Economic Review 89(3), 379–399.
Frankel, J., Rose, A., 2002. An estimate of the effect of common currencies on trade and income. Quarterly Journal of Economics 117(2), 437–466.
Goldemberg, J., 1998. Viewpoint: leapfrog energy technologies. Energy Policy 26(10), 729–741. Grossman, G., Krueger, A., 1995. Economic growth and the environment. Quarterly Journal of Economics 110(2), 352-377.
Grove, R.H., 1992. Origins of western environmentalism. Scientific American 267(1), 42-47.
Halkos, G. E., 2003. Environmental Kuznets Curve for sulfur: evidence using GMM estimation and random coefficient panel data models. Environmental and Development Economics 8(4), 581-601.
He, J., 2002. The foreign direct investment and air pollution in China: the case of SO2 concentration in Chinese cities. Better air quality in Asian and Pacific Rim cities conference, Hong Kong.
Hettige, H., Lucas, R.E.B., Wheeler, D., 1992. The toxic intensity of industrial production: global patterns, trends, and trade policy? American Economic Review 82(2), 478-481.
Hsiao, C., 1986. Analysis of Panel Data. Cambridge University Press, Cambridge.
IPCC, 2007. Climate change 2007: physical science basis. Contribution of working group 4th report of intergovernmental panel on climate change, Paris.
Jensen, V., 1996. The pollution haven hypothesis and the industrial flight hypothesis: some perspectives on theory and empirics. Working Paper 1996.5, Centre for Development and the Environment, University of Oslo.
John, A., and Pecchenino, R., 1994. An Overlapping Generations Model of Growth and the Environment. Economic Journal 104(427), 1393-1410.
Jones, L., and Manuelli, R., 2001. Endogenous Policy Choice: The Case of Pollution and Growth. Review of Economic Dynamics 4(2), 369-405.
Kaufmann, R. K., Davidsdottir, B., Garnham, S., and Pauly, P., 1998. The determinants of atmospheric SO2 concentrations: reconsidering the environmental Kuznets curve. Ecological Economics 25(2), 209-220.
Kolstad, C.D. and J.A. Krautkraemer, 1993, Natural Resource Use and the Environment, in: A.V. Kneese and J.L. Sweeney, eds., Handbook of Natural Resources and Energy Economics, vol. III (Elsevier Science Publishers), 1219-1265.
Kumbaroglu, G., Karali, N., Arıkan, Y., 2008. CO2, GDP and RET: an aggregate economic equilibrium analysis for Turkey. Energy Policy 36(7), 2694-2708.
Lanoie P., Laplante B., Roy M., 1998. Can capital markets create incentives for pollution control? Ecological Economics 26(1), 31-41.
Liang, G., 2006. International business and industry life cycle: theory, empirical evidence and policy implications. Paper accepted for presentation at the Annual Conference on Corporate Strategy, Berlin, 19–20 May.
List, J.A., Co, C.Y., 2000. The effect of environmental regulation on foreign direct investment. Journal of Environmental Economics and Management 40(1), 1-20.
Meadows, D.H., Meadows, D.L., Randers, J., Behrens, W., 1992. The Limits to Growth. Universe Books, New York.
Nordström, H. and Vaughan, S., 1999. Trade and Environment: Special Studies 4. Geneva: World Trade Organization.
Panayotou, T., 1997. Demystifying the environmental Kuznets curve: turning a black box into a policy tool. Environment and Development Economics 2(4), 465 - 484.
Persson, T., A., Azar, C., and Lindgren, K., (2006). Allocation of CO2 emission permits - Economic incentives for emission reductions in developing countries. Energy Policy 34(14), 1889-1899.
Piñeiro Chousa, J., Khan, H., Melikyan, D., and Tamazian, A., 2005. Assessing institutional efficiency, growth and integration. Emerging Markets Review 6(1), 69-84.
Revkin, A., 2000. A plunge in use of food stamps causes concern. New York Times, February 25.
Selden, T.M., Song, D., 1994. Environmental quality and development: is there a Kuznets curve for air pollution emission? Journal of Environmental Economics and Management 27(2), 147–162.
Shafik, N., Bandyopadhyay, S., 1992. Economic Growth and Environmental Quality: Time-Series and Cross-Country Evidence. Background Paper for World Development Report 1992. World Bank, Washington, DC.
Shafik, N.T., 1994. Economic development and environmental quality: an econometric analysis. Oxford Economic Papers 46(0), 757–73.
Stern, D., 2004. The rise and fall of the environmental Kuznets curve. World Development 32(8): 1419–1439.
Stokey, N., 1998. Are There Limits to Growth? International Economic Review 39(1), 1-31.
Tamazian, A., Piñeiro, J., and Vadlamannati, K. C., 2009. Does Higher Economic and Financial Development lead to Environmental Degradation: Evidence from BRIC Countries. Energy Policy 37(1), 246-253.
Torras, M., and Boyce, J. K., 1998. Income, inequality, and pollution: a reassessment of the environmental Kuznets Curve. Ecological Economics 25(2), 147-160.
World Bank, 2000. Is globalization causing a "race to the bottom" in environmental standard? PREM economic policy group and development Economics Group, April 2000.
Zugravu, N., K. Millock and G. Duchêne, 2009. The factors behind CO2 emission reduction in transition economies. Louvain Economic Review (forthcoming).