Environmental Macroeconomics: A critical literature review and future empirical research directions

Halkos, George and Paizanos, Epameinondas (2015): Environmental Macroeconomics: A critical literature review and future empirical research directions.

Abstract

In the existing literature much attention has been given to the toolbox of regulatory policy instruments at the disposal of policy makers for addressing environmental concerns. Microeconomic treatment of environmental policy considers the optimal allocation of a given scale of resource flow within the economy, but neglects the scale and composition of economic activity relative to the ecosystem that supports it. An ecological approach to macroeconomics requires the appreciation of physical constraints to economic growth. This paper presents the theoretical underpinnings and the empirical findings of the literature on the link between economic growth and environmental quality, as well as of the relationship between fiscal policy and environmental degradation, by reviewing the relevant literature. The empirical findings on both relationships are not robust and are therefore inconclusive. The paper provides conclusions and directions for future research which may assist to solve this ambiguity on the examined relationships.

• Item Type: MPRA Paper
• Language: English
• Keywords: Environmental Macroeconomics; Economic growth; Natural resources; Fiscal policy.
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P28 - Natural Resources ; Energy ; Environment; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q01 - Sustainable Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q28 - Government Policy; 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

References

Afonso A. and Furceri D. (2010). Government Size, Composition, Volatility and Economic Growth. European Journal of Political Economy, 26 (4), 517–532.

Agénor P. R. and Neanidis K.C. (2006). The Allocation of Public Expenditure and Economic Growth, Centre for Growth and Business Cycle Research Discussion Paper Series No. 69, University of Manchester.

Alstine J. and Neumayer E. (2010) The environmental Kuznets curve In: Gallagher K.P. (ed.) Handbook on Trade and the Environment, Elgar original reference, Edward Elgar, Cheltenham, UK.

Ansuategi A., Barbier E.B. and C.A. Perrings C.A. (1998). The Environmental Kuznets Curve, in van den Bergh J.C.J.M. and Hofkes M.W. (eds), Theory and Implementation of Economic Models for Sustainable Development, Kluwer Academic Publishers.

Arrow K., Bolin B., Costanza R., Dasgupta P., Folke C., Holling C. S., Jansson B.O., Levin S., Mäler K.G., Perrings C. and Pimentel D. (1995). Economic growth, carrying capacity and the environment, Science, 268, 520–521.

Asafu-Adjaye J. (2003). Biodiversity loss and economic growth: a cross-country analysis, Contemporary Economic Policy, 21(2), 173-185.

Beckerman W. (1992). Economic growth and the environment: Whose growth? Whose environment? World Development, 20, 481–496.

Bella, G, Massidda, Carla, and Mattana, Paolo. (2014). The relationship among CO2 emissions, electricity power consumption and GDP in OECD countries. Journal of Policy Modeling, Elsevier, vol. 36 (6), 970-985.

Bergh A. and Karlsson M. (2010). Government size and growth: Accounting for economic freedom and globalization, Public Choice, 142 (1), 195-213.

Bernauer T. and Koubi V. (2009). Effects of political institutions on air quality, Ecological Economic, 68 (5), 1355-1365.

Bernauer T. and Koubi V. (2013). Are bigger governments better providers of public goods? Evidence from air pollution, Public Choice, 156(3), 693-609.

Binder S. and Neumayer E. (2005). Environmental pressure group strength and air pollution: An empirical analysis, Ecological Economics, 55, 527-538.

Bithas K. (2006). The necessity for environmental taxes for the avoidance of environmental thievery: a note on the paper ‘Environmental responsibility versus taxation’, Ecological Economics 56, 159–161.

Bithas K. (2011). Sustainability and externalities: Is the internalization of externalities a sufficient condition for sustainability? Ecological Economics, 70, 1703–1706.

Blanchard O.J. and Perotti R. (2002). An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output, Quarterly Journal of Economics, 117 (4), 1329-1368.

Brock W.A. (1973). A polluted golden age. In: Smith, V.L. (Ed.), Economics of Natural and Environmental Resources. Gordon & Breach, New York, pp. 441–461.

Calbick K.S. and Gunton T. (2014). Differences Among OECD Countries’ GHG Emissions: Causes and Policy Implications, Energy Policy, 67, 895-902.

Canova, Fabio & de Nicolò, Gianni, 1998. "Did You Know that Monetary Disturbances Matter for Business Cycles Fluctuations? Evidence from the G-7 Countries," CEPR Discussion Papers 2028, C.E.P.R. Discussion Papers.

Christopoulos D.K. and Tsionas E.G. (2004). Financial development and economic growth: evidence from panel unit root and cointegration tests, Journal of Development Economics, Elsevier, 73(1), 55-74.

Cole M.A., Rayner A.J. and Bates J.M. (1997). The environmental Kuznets curve: An empirical analysis. Environment and Development Economics, 2, 401–416.

Cole M.A. and Elliott R.J.R. (2003). Determining the trade-environment composition effect: the role of capital, labor and environmental regulations, Journal of Environmental Economics and Management, 46(3), 363-383.

Cole M.A. (2004). Trade, the pollution haven hypothesis and the environmental Kuznets curve: examining the linkages, Ecological Economics, 48(1), 71-81.

Cole M.A. (2007). Corruption, income and the environment: An empirical analysis, Ecological Economics, 62, 637-647. Copeland B.R., Taylor M.S. (2004). Trade, growth and the environment. Journal of Economic Literature, 42, 7–71.

Dalamagas B. (2000). Public sector and economic growth: the Greek experience”, Applied Economics, 32, 277-288. Daly H. (1990). Commentary: toward some operational principles of sustainable development, Ecological Economics, 2, 1–6.

Daly H.E. (1991). Elements of Environmental Macroeconomics, Chapter 3 in Robert Costanza (ed.), Ecological Economics: The Science and Management of Sustainability, Columbia University Press, New York.

De Bruyn S.M. and Opschoor J.B. (1997). Developments in the throughput–income relationship: theoretical and empirical observations, Ecological Economics, 20, 255–268.

Dinda S. (2004). Environmental Kuznets curve hypothesis: A survey, Ecological Economics, 49, 431-455.

Evans D. (2005). The elasticity of marginal utility of consumption: estimates for 20 OECD countries, Fiscal Studies, 26, 197–224.

Faust J. (1998). The Robustness of Identified VAR Conclusions about Money, Carnegie-Rochester Conference Series on Public Policy, 49, 207-244.

Frederik C. and Lundström S. (2001). Political and Economic Freedom and the Environment: The Case of CO2 Emissions, Working Paper in Economics no. 29, University of Gothenburg, Gothenburg.

Fullerton D. and Kim S.R. (2008). Environmental Investment and Policy with Distortionary Taxes, and Endogenous Growth, Journal of Environmental Economics and Management, 56(2), 141-154.

Galeotti M., Manera M. and Lanza A. (2006). On the Robustness of Robustness Checks of the Environmental Kuznets Curve, Working Paper 22, Fondazione Eni Enrico Mattei, Milano.

Galinato G.I and Islam F. (2014). The Challenge of Addressing Consumption Pollutants with Fiscal Policy, Working Paper Series WP 2014-1, Washington State University, Washington.

Ghali K.H. (1998). Government size and economic growth: evidence from a multivariate cointegration analysis, Applied Economics, 31, 975-987.

Grossman G.M. and Krueger A.B. (1993). Environmental impacts of a North American Free Trade Agreement, in P. Garber (ed.), The US–Mexico Free Trade Agreement, MIT Press, Cambridge, MA.

Grossman G. and Krueger A. (1995). Economic growth and the Environment, Quarterly Journal of Economics, 110, 353-377.

Halkos G.E. and Tsionas E.G. (2001). Environmantal Kuznets Curves: Bayesian evidence from switching regime models, Energy Economics, 23, 191– 210.

Halkos G.Ε. (2003). Environmental Kuznets Curve for sulfur: evidence using GMM estimation and random coefficient panel data models, Environment and Development Economics, 8, 581-601.

Halkos G.Ε. and Matsiori S. (2012). Determinants of willingness to pay for coastal zone quality improvement, The Journal of Socio-Economics, 41, 391–399.

Halkos G.Ε. (2013a). Exploring the economy - environment relationship in the case of sulphur emissions, Journal of Environmental Planning and Management, 56 (2), 159-177.

Halkos G.Ε. (2013b). Economy and Environment: Evaluation and Management Methods, Liberal Books, Athens.

Halkos G.Ε. and Paizanos E. (2013). The effect of government expenditure on the environment: An empirical investigation, Ecological Economics, 91, 48-56.

Halkos G.Ε. and Matsiori S. (2014). Exploring social attitude and willingness to pay for water resources conservation, Journal of Behavioral and Experimental Economics, 49, 54-62.

Han X. and Chatterjee L. (1997). Impacts of growth and structural change on CO2 emissions of developing countries, World Development, 25, 395-407.

Harris J.M. and Codur A.M. (2004) Macroeconomics and the Environment; Global Development and Environment Institute: Boston, MA, USA.

Harris J.M. (2009). Ecological Macroeconomics: Consumption, Investment and Climate Change. In: Harris J.M. and Goodwin N.R. (Eds.), Twenty-First Century Macro-economics: Responding to the Climate Challenge. Edward Elgar, Northhampton MA.

Heil M.T. and Selden T.M. (2001). Carbon emissions and economic development: Future trajectories based on historical experience. Environment and Development Economics, 6, 63–83.

Heilbroner R. (1953). The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers, Simon & Schuster.

Heyes A. (2000). A proposal for the greening of textbook macro: ‘IS-LM-EE’. Ecological Economics 32, 1-7.

Hobbes T. (1651). Leviathan or The Matter, Forme and Power of a Common Wealth Ecclesiasticall and Civil.

Hollander S. (1997). The Economics of Thomas Robert Malthus (Studies in Comparative Political Economy and Public Policy), 1st Edition.

Holtz-Eakin D. and Selden T.M. (1995). Stoking the fires? CO2 emissions and economic growth, Journal of Public Economics, 57(1), 85–101.

Islam F. and Lopez R. (2015). Government Spending and Air Pollution in the U.S, International Review of Environmental and Resource Economics, 8(2), 139-189.

Jänicke M., Binder M. and Mönch H. (1997). ‘Dirty Industries’: Patterns of Change in Industrial Countries, Environmental and Resource Economics, 9, 467-491.

Jones N., Evangelinos K., Halvadakis C.P. , Iosifides T. and Sophoulis C.M. (2010). Social factors influencing perceptions and willingness to pay for a market-based policy aiming on solid waste management, Resources Conservation and Recycling, 54, 533–540.

Jones N., Iosifides T., Evangelinos K.I., Florokapi I. and Dimitrakopoulos P.G. (2012). Investigating knowledge and perceptions of citizens of the National Park of Eastern Macedonia and Thrace, Greece, International Journal of Sustainable Development & World Ecology, 19 (1), 25–33.

Kaufmann R. K., Davidsdottir B., Garnham S., and Pauly P. (1997). The determinants of atmospheric SO2 concentrations: Reconsidering the environmental Kuznets curve, Ecological Economics 25, 209–220.

Kumbhakar S.C. and Tsionas E.G. The good, the bad and the technology: endogeneity in environmental models, forthcoming in Journal of Econometrics.

Kuznets S. (1955). Economic Growth and Income Inequality, American Economic Review, 49, 1-28.

List J.A. and Gallet C.A. (1999). The environmental Kuznets curve: does one size fit all? Ecological Economics, 31, 409–424.

Lopez R. (1994). The environment as a factor of production: the effects of economic growth and trade liberalization, Journal of Environmental Economics and Management, 27, 163-184.

Lopez R., Thomas V. and Wang Y. (2010). The Quality of Growth: Fiscal Policies for Better Results, IEG World Bank. Lopez R., Galinato G.I and Islam F. (2011). Fiscal spending and the environment: Theory and empirics, Journal of Environmental Economics and Management, 62, 180-198.

Malthus T.R. (1798). An Essay on tie Principle of Population, W. Pickering, London, 1986.

Malthus T.R. (1820). Principles of Political Economy Considered with a View of their Practical Application, John Murray, London, Retrieved 2012.

Martinez-Mongay C. (2002). Fiscal Policy and the Size of Governments, in M. Buti, J. von Hagen and C. Martinez-Mongray, eds., The Behaviour of Fiscal Authorities -Stabilisation, Growth and Institutions, Palgrave, Basinstoke.

McAusland C. (2008). Trade, Politics, and the Environment: Tailpipe vs. Smokestack, Journal of Environmental Economics and Management, 55 (1), 52-71.

Mountford A. and Uhlig H. (2009). What are the Effects of Fiscal Policy Shocks? Journal of Applied Econometrics, 24, 960-992.

Mueller D.C. and Murrell P. (1986). Interest groups and the size of government, Public Choice, 48(1), 125-145.

Panayotou T. (1993). Empirical tests and policy analysis of environmental degradation at different stages of economic development, Working Paper WP238, Geneva: Technology and Employment Programme, International Labour Office.

Panayotou T. (1997). Demystifying the environmental Kuznets curve: turning a black box into a policy tool, Environment and Development Economics 2, 465–484.

Panayotou T. (2003). Economic Growth and The Environment, Spring Seminar of The United Nations Economic Commission For Europe, Geneva.

Perman R. and Stern D.I. (1999). The Environmental Kuznets Curve: Implications of Nonstationarity, Working Paper in Ecological Economics no. 9901, Centre for Resource and Environmental Studies, Australian National University, Canberra.

Perman R., Stern D.I. (2003). Evidence from panel unit root and cointegration tests that the environmental Kuznets curve does not exist. Australian Journal of Agricultural and Resource Economics, 47, 325–347.

Perrings C. and Halkos G. (2012). Who Cares about Biodiversity? Optimal Conservation and Transboundary Biodiversity Externalities, Environmental and Resource Economics, 52(4), 585-608.

Ram R. (1986). Government size and economic growth: A new framework and some evidence from cross section and Time-Series Data, American Economic Review, 76, 191-203.

Rao B. (1989). Government Size and Economic Growth: A New Framework and Some Evidence from Cross-Section and Time-Series Data: Reply, American Economic Review, 79, 272-280.

Rock M.T. (1996). Pollution intensity of GDP and trade policy: Can the World Bank be wrong, World Development, 24, 471– 479.

Selden T.M. and Song D. (1994). Environmental quality and development: is there a Kuznets curve for air pollution emissions?, Journal of Environmental Economics and Management, 27, 147–162.

Seppala T., Haukioja T. and Kaivo-oja J. (2001). The EKC hypothesis does not hold for direct material flows, Population and Environment, 23(2), 217-238.

Shafik N. and Bandyopadhyay S. (1992). Economic growth and environmental quality: time series and cross-country evidence, Background paper for the World Development Report 1992, The World Bank, Washington DC.

Shafik N. (1994). Economic development and environmental quality: an econometric analysis. Oxford Economic Papers, 46, 757–773.

Skouloudis A. and Evangelinos K. (2012). A research design for mapping national CSR terrains, International Journal of Sustainable Development & World Ecology, 19(2), 130–143.

Smith A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations, Methuen & Co Ltd, 5th edition, London, 1904.

Sobel R.S. (2001). A Public Choice Explanation for the Budget Surplus, The Journal of Economic Perspectives, 15(4), 219-221.

Stern D.I., Common M.S. and Barbier E.B. (1996). Economic growth and environmental degradation: The environmental Kuznets curve and sustainable development, World Development, 24(7), 1151-1160.

Stern D.I and Common M.S. (2001). Is there an Environmental Kuznets Curve for sulfur?, Journal of Environmental Economics and Management, 41, 162-178.

Stern D.I. (2010). Modeling international trends in energy efficiency and carbon emissions. Environmental Economics Research, Hub Research Report, no. 54.

Stern D.I. (2014). The Environmental Kuznets Curve: A Primer, CCEP Working Papers, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University, http://EconPapers.repec.org/RePEc:een:ccepwp:1404.

Suri V. and Chapman D. (1998). Economic growth, trade and energy: implications for the environmental Kuznets curve, Ecological Economics, 25, 195-208.

Thomas, Vinod., Mansoor Dailami, Ashok Dhareshwar, Rámon E. López, Daniel Kaufmann, Nalin Kishor, and Yan Wang. (2000) . The Quality of Growth. New York: Oxford University Press.

Tobey J.A. (1990). The effects of domestic environmental policies on patterns of world trade: An empirical test. Kyklos, 43, 191–209.

Torras M. and Boyce J.K. (1998). Income, inequality, and pollution: a reassessment of the environmental Kuznets curve, Ecological Economics, 25, 147–160.

Uhlig H. (2005). What are the effects of monetary policy? Results from an agnostic identification procedure, Journal of Monetary Economics, 52, 381–419.

United Nations Development Programme (UNDP – 1999). Human Development Report Statistics CD-Rom. United Nations Development Programme, New York.

Wagner M. and Müller-Fürstenberger G. (2005). The Carbon Kuznets Curve: A Cloudy Picture Emitted by Bad Econometrics? University of Bern, Department of Economics.

Welsch H. (2004). Corruption, growth and the environment: a cross-country analysis, Environment and Development Economics, 9, 663–693.

Xepapadeas A. (2005). Economic growth and the environment, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 23, pp. 1219-1271 Elsevier.

Yang Z., Wang W. , Yang Y.and Fang F. (2014). An Empirical Study of Environmental Kuznets Curve in China, Chapter: Proceedings of the 21st International Conference on Industrial Engineering and Engineering Management, Part of the series Proceedings of the International Conference on Industrial Engineering and Engineering management, pp 551-553.

Zarzoso M. I. and Morancho B. A. (2004). Pooled mean group estimation of an environmental Kuznets curve for CO2, Economics Letters, 82, 121–126

Zhu Q. and Peng X. (2012). The impacts of population change on carbon emissions in China 1978-2008, Environmental Impact Assessment Review, 36, 1-8.