Relationship between Economic Development and Environment: A Panel Data Approach

Abstract

This study focusses on the effect of economic development on environmental indicators and attempts to understand the relationship between economic development represented by a set of economic variables, such as gross domestic product (GDP) per capita and environmental indicators such as carbon dioxide emissions and other environmental indicators. The study used cross section and time series, that is, panel database of the countries for the period 1960–2014. On the basis of analysis, the study found that most of the environmental indicators deteriorate with higher population density due to more pressure on the environment and natural resources with high population density. The relationship between environmental quality and industry value addition has emerged positive from the analysis. All the environmental indicators, except ‘HFC gas emissions’ and ‘PFC gas emissions’, are positively influenced by value addition by the industry. Furthermore, the study found that most of the environmental indicators clearly improved with a higher share of trade in GDP. The reason is that open economies tend to be cleaner than closed economies. Expanding trade can lead to improved environmental quality. Openness and competition will increase investment in new technological processes to meet higher environmental standards. As expected, the study clearly found that environmental quality deteriorates with higher energy use and with higher urban population. The number of deteriorated environmental indicators due to mean years of schooling is more than the number of environmental indicators improved due to schooling.

The study analysed that only four environmental indicators have a significant relationship with public expenditure on education. Out of these four environmental indicators, two indicators (‘bird species threatened’ and ‘plant species threatened’) improve with public expenditure on education and other two indicators (‘PM level’ and ‘organic water pollutant’) deteriorate with higher public expenditure on education.