Economic growth and its impact on environment: A panel data analysis

Asici, Ahmet Atıl (2011): Economic growth and its impact on environment: A panel data analysis.

Abstract

This paper aims to explore the relationship between the economic growth and the pressure on nature from the environmental sustainability perspective. We measure pressure on nature as the sum of energy, mineral, net forest depletions and carbon dioxide damage, all measured in US dollars. The data is taken from the Adjusted Net Savings data of World Bank. Our panel consists of 213 countries and spans the period between 1970 and 2008. To investigate the causal effect of economic growth on nature we employ two strategies; fixed-effects and fixed-effects instrumental-variables (IV) regressions. Cross-country analysis reveals that there is a positive relationship between income and pressure on nature. However, the relationship is not linear across countries; the effect is much stronger in middle-income countries than in low and high-income countries. Our results are robust to the inclusion of various covariates and moreover they do not support the Environmental Kuznets Curve hypothesis which foresees a reduction in environmental degradation once a certain level of development is reached.

• Item Type: MPRA Paper
• Language: English
• Keywords: Adjusted Net Saving, Genuine Saving, Sustainability, Panel data
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development; 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 > Q0 - General > Q01 - Sustainable Development

References

Alam, Shaista 2010. “Globalization, Poverty and Environmental Degradation: Sustainable Development in Pakistan”, Journal of Sustainable Development, 3:3, p. 103-114. Aufhammer, M., A. M. Bento, S. E. Lowe, 2009. “Measuring the effects of the Clean Air Act Amendments on ambient PM10 concentrations: The critical importance of a spatially disaggregated analysis”, Journal of Environmental Economics and Management, 58:1, 15-26. Barrett, Scott, and Kathryn Graddy, 2000. “Freedom, Growth and the Environment”, Environment and Development Economics, 5:4, 433-456. Boulatoff, C. and Michael Jenkins, 2010. “Long-term nexus between openness, income and environmental quality”, International Advances in Economic Research, 16:4, 410-18. Bridger, J. C. and A. E., Luloff, 1999 “Toward an interactional approach to sustainable community development”, Journal of Rural Studies, 15:4, 377–387. Carson, Richard T., 2010, “The Environmental Kuznets Curve: Seeking Empirical Regularity and Theoretical Structure” Review of Environmental Economics and Policy, 4:1, 3–23 Chinn, Menzie D. and Hiro Ito 2008. “A New Measure of Financial Openness”, Journal of Comparative Policy Analysis, 10:3, 309 – 322 Cole, M.A., A.J. Rayner and J.M. Bates, 1997. “The environmental Kuznets curve: an empirical analysis”, Environment and Development Economics, 2, 401-416. Commoner, B., Corr, M., Stamler, P.J., 1971. “The causes of pollution”, Environment, 13:3, p. 2-19. Cropper, Maureen and Charles Griffiths, 1994. “The Interaction of Population Growth and Environmental Quality” The American Economic Review, 84:2, 250-254. Deacon, Robert T., 1994. “Deforestation and rule of law in a cross-section of countries”, Land Economics, 70:4, 414-30. Ehrhardt-Martinez, Karen, Edward M. Crenshaw, and J. Craig Jenkins, 2002. “Deforestation and the Environmental Kuznets Curve: A Cross-National Investigation of Intervening Mechanisms”, Social Science Quarterly, 83:1, 226–243. Ehrlich, P., and J. Holden, 1971. “Impact of population growth” Science, 171, 1212–17 Ekins, P., S. Simon, L. Deutsch, C. Folke and R. de Groot, 2003. “A framework for the practical application of the concepts of critical natural capital and strong sustainability”, Ecological Economics, 44:2–3, 165–185. Esty, Daniel C., and Michael E. Porter. 2005. “National Environmental Performance: An Empirical Analysis of Policy Results and Determinants”, Environmental and Development Economics 10:4, 391–434. Ferreira, Susana, Kirk Hamilton, and Jeffrey R. Vincent, 2008. “Comprehensive Wealth and Future Consumption: Accounting for Population Growth”, The World Bank Economic Review, 22: 2, 233–248 Frankel, Jeffrey A. and Andrew K. Rose, 2005. “Is Trade Good or Bad for the Environment? Sorting Out the Causality”, The Review of Economics and Statistics, 87:1,85-91. Gnegne, Yacouba, 2009. “Adjusted net saving and welfare change”, Ecological Economics, 68:4,1127-1139 Gowdy, John and Sabine O'Hara 1997. “Weak sustainability and viable technologies”, Ecological Economics, 22:3, 239-247, Granger, C.W.J. and P. Newbold, 1974. “Spurious regressions in econometrics”, Journal of Econometrics, 2, 111–120. Grossman, Gene M. and Alan B. Krueger, 1991. “Environmental Impacts of a North American Free Trade Agreement”, NBER Working Paper Series, No: 3914. Grossman, Gene M. and Alan B. Krueger, 1995. “Economic Growth and the Environment”, The Quarterly Journal of Economics, 110:2, 353–377. Harbaugh W. T., Levinson A., Wilson D. M. 2002. “Reexamining the empirical evidence for an environmental Kuznets curve”, Review of Economics and Statistics, 84, 541-51. Hardin, Garrett 1968. “The Tragedy of the Commons”, Science, 162, 1243-1248. Im, Kyung So, M. Hashem Pesaran, and Yongcheol Shin, 2003. “Testing for unit roots in heterogeneous panels”, Journal of Econometrics, 115:1, 53-74. Jordan, Ben R., 2010, “The Environmental Kuznets Curve: Preliminary Meta-Analysis of Published Studies, 1995-2010”, Workshop on Original Policy Research Working Paper Levin, A., Chien-Fu Lin, Chia-Shang James Chu, 2002 “Unit root tests in panel data: asymptotic and finite-sample properties”, Journal of Econometrics, 10:1, 1-24. Maddala, G.S. and S. Wu, 1999. “A comparative study of unit root tests with panel data and a new simple test”, Oxford Bulletin of Economics and Statistics, 61, 631–652. Özler, Ş. İlgü, Brian K. Obach, 2009. “Capitalism, state economic policy and ecological footprint”, Global Environmental Politics, 9:1, 79-108. Parris, Thomas M., and Robert W. Kates, 2003. “Characterizing and Measuring Sustainable Development”, Annual Review of Environment and Resources, 28, 559–586. Pedroni, Peter, 2004. “Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The PPP Hypothesis," Econometric Theory, 20(03), 597-625. Perman, R and D.I. Stern 2003. “Evidence from panel unit root and cointegration tests that the Environmental Kuznets Curve does not exist”, The Australian Journal of Agricultural and Resource Economics, 47:3, pp. 325–347. Pillarisetti, J. Ram, 2005, “The World Bank’s genuine savings measure and sustainability”, Ecological Economics, 55, 599-609. Roberts, J. Timmons, and Peter E. Grimes, 1997. “Carbon Intensity and Economic Development 1962–91: A Brief Exploration of the Environmental Kuznets Curve”, World Development 25:2, 191–198. Torras, M. and J. K. Boyce, 1998. “Income, inequality, and pollution: A reassessment of the environmental Kuznets curve”, Ecological Economics, 25, 147-160 Quah, D., 1994. “Exploiting cross-section variation for unit root inference in dynamic data”, Economic Letters, 18, 381–386. Stern, David I., 2004. “The Rise and Fall of the Environmental Kuznets Curve”, World Development, 32:8, 1419–1439 Stern, David I., 2009. “Between estimates of the environmental Kuznets curve," Environmental Economics Research Hub Research Reports No: 0934, Environmental Economics Research Hub, Crawford School, Australian National University. Wackernagel, Mathis, L. Onisto, P. Bello, A. C. Linares, I.S.L. Falfan, J. M. Garcia, A. I. S. Guerrero, and M. G. S. Guerrero, 1999. “National Natural Capital Accounting with the Ecological Footprint Concept”, Ecological Economics 29:3, 375–390. York, R., E. A. Rosa and Thomas Dietz, 2003. “STIRPAT, IPAT and ImPACT: analytic tools for unpacking the driving forces of environmental impacts”, Ecological Economics, 46:3, 351-365.