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

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Valeria Costantini (University of Roma Tre)
Chiara Martini (University of Roma Tre)

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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.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.148.

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Date of creation: Nov 2006
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Handle: RePEc:fem:femwpa:2006.148

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Related research
Keywords: Environmental Kuznets Curve; Sustainable development; Human development; Genuine saving; Panel data;

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Find related papers by JEL classification:
O15 - Economic Development, 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 Accounting

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Awudu Abdulai & Linda Ramcke, 2009. "The Impact of Trade and Economic Growth on the Environment: Revisiting the Cross-Country Evidence," Kiel Working Papers 1491, Kiel Institute for the World Economy. [Downloadable!]
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