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A Structural Analysis of Economic Growth-Environment Relationship under Economic Openness

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  • Dutta, Dilip
  • Ghosh, Paritosh Chandra

Abstract

Economic openness under globalisation process has been instrumental for recent increased transfer of both production and consumption activities across countries. Such transfers may have been shifting associated environmental effects from one country to another. In this paper, we have developed a structural model of the relationship between economic growth and environmental quality. We decompose the environmental Kuznets curve (EKC) relationship by breaking down net environmental effect of economic activities into three major determinants: scale, composition and abatement effects. We have incorporated additional variables such as, trade openness, foreign direct investment (FDI) and technological changes in our model to examine the effects of economic openness on the economic growth-environmental relationship. We find that trade openness reinforces increasing scale effect; FDI pushes inverted U-shape of composition effect upward; and technology seems to result in stronger abatement effect. The improvement of environmental quality under globalisation will thus require stronger abatement measures in order to offset increased detrimental scale and composition effects. But stronger abatement measures need better access to modern technologies and therefore, modern technology dissemination is a pre-requisite for improvement of environmental quality.

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File URL: http://hdl.handle.net/2123/7650
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Bibliographic Info

Paper provided by University of Sydney, School of Economics in its series Working Papers with number 4.

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Date of creation: Feb 2003
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Handle: RePEc:syd:wpaper:2123/7650

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Postal: Sydney, NSW 2006
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Web page: http://sydney.edu.au/arts/economics
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Keywords: Environmental Kuznets Curve; Economic Growth; Pollution; Economic openness; Carbon dioxide emission; Panel data analysis;

References

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  1. Gene M. Grossman & Alan B. Krueger, 1991. "Environmental Impacts of a North American Free Trade Agreement," NBER Working Papers 3914, National Bureau of Economic Research, Inc.
  2. Torras, Mariano & Boyce, James K., 1998. "Income, inequality, and pollution: a reassessment of the environmental Kuznets Curve," Ecological Economics, Elsevier, vol. 25(2), pages 147-160, May.
  3. Unruh, G. C. & Moomaw, W. R., 1998. "An alternative analysis of apparent EKC-type transitions," Ecological Economics, Elsevier, vol. 25(2), pages 221-229, May.
  4. Arrow, Kenneth & Bolin, Bert & Costanza, Robert & Dasgupta, Partha & Folke, Carl & Holling, C. S. & Jansson, Bengt-Owe & Levin, Simon & Maler, Karl-Goran & Perrings, Charles & Pimentel, David, 1995. "Economic growth, carrying capacity, and the environment," Ecological Economics, Elsevier, vol. 15(2), pages 91-95, November.
  5. Stern , David I., 1998. "Progress on the environmental Kuznets curve?," Environment and Development Economics, Cambridge University Press, vol. 3(02), pages 173-196, May.
  6. Rothman, Dale S., 1998. "Environmental Kuznets curves--real progress or passing the buck?: A case for consumption-based approaches," Ecological Economics, Elsevier, vol. 25(2), pages 177-194, May.
  7. Cole, M.A. & Rayner, A.J. & Bates, J.M., 1997. "The environmental Kuznets curve: an empirical analysis," Environment and Development Economics, Cambridge University Press, vol. 2(04), pages 401-416, November.
  8. Barro, Robert J, 1996. " Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
  9. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  10. Munasinghe, Mohan, 1999. "Is environmental degradation an inevitable consequence of economic growth: tunneling through the environmental Kuznets curve," Ecological Economics, Elsevier, vol. 29(1), pages 89-109, April.
  11. repec:fth:calaec:11-99 is not listed on IDEAS
  12. Islam, N. & Vincent, J., 1999. "Unveiling the Income-Environment Relationship: An Exploration into the Determinants of Environmental Quality," Papers 701, Harvard - Institute for International Development.
  13. Barbier, Edward B., 1997. "Introduction to the environmental Kuznets curve special issue," Environment and Development Economics, Cambridge University Press, vol. 2(04), pages 357-367, November.
  14. Selden Thomas M. & Song Daqing, 1994. "Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 147-162, September.
  15. Deacon, Robert, 1999. "The Political Economy of Environment-Development Relationships: A Preliminary Framework," University of California at Santa Barbara, Economics Working Paper Series qt8h33b5c0, Department of Economics, UC Santa Barbara.
  16. P Ekins, 1997. "The Kuznets curve for the environment and economic growth: examining the evidence," Environment and Planning A, Pion Ltd, London, vol. 29(5), pages 805-830, May.
  17. Panayotou, Theodore, 1997. "Demystifying the environmental Kuznets curve: turning a black box into a policy tool," Environment and Development Economics, Cambridge University Press, vol. 2(04), pages 465-484, November.
  18. Costanza, Robert, 1995. "Economic growth, carrying capacity, and the environment," Ecological Economics, Elsevier, vol. 15(2), pages 89-90, November.
  19. Kaufmann, Robert K. & Davidsdottir, Brynhildur & Garnham, Sophie & Pauly, Peter, 1998. "The determinants of atmospheric SO2 concentrations: reconsidering the environmental Kuznets curve," Ecological Economics, Elsevier, vol. 25(2), pages 209-220, May.
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