New insights on the long-run relationship between economic growth and environmental quality

Ahmed, Redwan (2017) New insights on the long-run relationship between economic growth and environmental quality. Masters thesis, Memorial University of Newfoundland.

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Abstract

One of the widespread debates in the field of environmental economics that started at the beginning of the 1990s concerns the relation between environmental pollution and economic growth. This research aims to investigate the most likely pattern of the long-run relationship between CO₂ emissions and economic growth, identify the factors that drive CO₂ emissions and propose policy recommendations for reducing CO₂ emissions. The study utilizes panel data on seven variables – per capita CO₂ emissions, GDP per capita, energy consumption, human population, trade openness, financial development and corruption in 65 countries over 51 years, from 1960 to 2010. Employing graphical tool and econometric techniques such as panel unit root test, panel cointegration test, FMOLS (Fully Modified Least Squares) estimates, Granger causality and IAA (Innovative Accounting Approach) analysis, the study finds that the most likely pattern of the relationship is a sigmoid curve showing that a country’s per capita CO₂ emissions increase when the country transitions from a low-income status to a middle-income status to a high-income status. Also, the study documents that the potential factors driving global CO₂ emissions are economic growth, financial development, energy consumption and corruption. An appropriate combination of emissions standards, pollution tax on fossil fuel based energy sources, anti-corruption strategies, socio-environmental standards for global trade, mass education and awareness about the adverse effects of CO₂ emissions on the environment and human health are potential policy measures.

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