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A Modified Environmental Kuznets Curve for Sustainable Development Assessment Using Panel Data

Author

Listed:
  • Costantini, Valeria
  • Martini, Chiara
Abstract
Sustainable development is a concept strictly connected with basic needs of the individuals. During the last years a number of empirical studies have tried to discover and quantify the causal relations between economic growth and environmental consumption and degradation. The most widely used empirical model is the so-called Environmental Kuznets Curve (EKC), nowadays applied to different polluting elements. Despite the huge diffusion of EKC studies, this model has been criticised for incompleteness of a sustainable development analysis. The aim of this paper is to build a Modified EKC (MEKC) in order to consider a wider concept of development rather than pure economic growth, including well-being aspects and sustainability of the development process. Using a macroeconomic measure of sustainability such as the World Bank's Genuine Saving and a measure of well-being such as the United Nations Human Development Index, we build a model in order to analyse linkages between higher welfare levels and natural resources consumption, verifying the sustainability of human development. A panel analysis for three years (1990-1995-2000) for a wide range of countries (including developed and developing countries) has been applied in order to respond to criticisms related to conjunctural results linked to pure cross-section studies. Comparisons among alternative pollutants (i.e., CO2, NOX, and SOX) and GS are described, and the robustness of the MEKC clearly emerges. Furthermore, in order to respond to criticisms for the reduced form of the EKC, an Instrumental Variables model has been tested both on CO2 and GS, while a system of equations has been tested considering simultaneously a traditional EKC and a MEKC for a longer time period (1996-2004). Unit root tests for non-stationary series have been computed, showing that the IV model gives satisfactory results. An indicator for technological capabilities has been added at this stage, accounting for diffusion of technical progress and import technology as suggested by Archibugi and Coco (2004). Causal relations identified within a MEKC allow to identify correlation between human development and sustainable development, following the classic inverted U-shaped curve of the EKC. Nonetheless, comparing the turning points of the MEKC and EKC, respectively, it seems that using this alternative specification some useful policy implications apply. The threshold level of human development in the MEKC corresponds to an income per capita level lower than the threshold level for the EKC, confirming the possibility of 'tunnelling through the curve' as suggested in Munasinghe (1999). Our results show that human development should be the first objective of international development policies, and an increase in human well-being is necessary to provide a sustainability path.

Suggested Citation

  • Costantini, Valeria & Martini, Chiara, 2006. "A Modified Environmental Kuznets Curve for Sustainable Development Assessment Using Panel Data," Climate Change Modelling and Policy Working Papers 12059, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemcc:12059
    DOI: 10.22004/ag.econ.12059
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    11. Mikkel Bennedsen & Eric Hillebrand & Sebastian Jensen, 2022. "A Neural Network Approach to the Environmental Kuznets Curve," CREATES Research Papers 2022-09, Department of Economics and Business Economics, Aarhus University.
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    15. Atwi, Majed & Barberán, Ramón & Mur, Jesús & Angulo, Ana, 2018. "CO2 Kuznets Curve Revisited: From Cross-Sections to Panel Data Models," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 40, pages 169-196.
    16. Awudu Abdulai & Linda Ramcke, 2008. "New Empirical Evidence for the Impact of Trade and Economic Growth on the Environment," DEGIT Conference Papers c013_022, DEGIT, Dynamics, Economic Growth, and International Trade.
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    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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