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The Environmental Consequences of Economic Growth Revisited


  • Hyun S Kim

    (Korea Energy Economics Institute)

  • Jungho Baek

    (University of Alaska Fairbanks)


Although numerous studies on the economic growth-environment nexus exist, relatively little attention has been paid to model the effect of income on the environment, controlling for other relevant factors. The primary contribution of this paper is to examine the environmental consequences of economic growth for developed and developing countries in a dynamic cointegration framework by incorporating energy consumption and foreign direct investment (FDI). For this purpose, an autoregressive distributed lag (ARDL) approach to cointegration is applied to annual data for the period 1971-2005. Results show that economic growth improves environmental quality for developed countries in the long-run, but worsen the environment in developing economies. We also find that energy consumption has a detrimental long-run effect on environmental quality for both developed and developing countries. FDI, however, is found to have little long-run effect on the environment in both developed and developing countries. Finally, it is found that, in the short-run, income and energy play key roles in affecting the environment in developed and developing countries, but FDI does not.

Suggested Citation

  • Hyun S Kim & Jungho Baek, 2011. "The Environmental Consequences of Economic Growth Revisited," Economics Bulletin, AccessEcon, vol. 31(2), pages 1198-1211.
  • Handle: RePEc:ebl:ecbull:eb-11-00077

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    References listed on IDEAS

    1. Holtz-Eakin, Douglas & Selden, Thomas M., 1995. "Stoking the fires? CO2 emissions and economic growth," Journal of Public Economics, Elsevier, vol. 57(1), pages 85-101, May.
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    Cited by:

    1. Mohamed Ali Hfaiedh & Wajdi Bardi, 2021. "Does FDI and Corruption affect Environmental Quality in Tunisia?," International Journal of Energy Economics and Policy, Econjournals, vol. 11(4), pages 267-275.
    2. Baek, Jungho & Gweisah, Guankerwon, 2013. "Does income inequality harm the environment?: Empirical evidence from the United States," Energy Policy, Elsevier, vol. 62(C), pages 1434-1437.
    3. Sandip SARKER & Arifuzzaman KHAN & Rezwan MAHMOOD, 2016. "FDI, Economic Growth, Energy Consumption & Environmental Nexus in Bangladesh," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 1, pages 33-44.
    4. Sujan Chandra Paul & Md. Harun Or Rosid & Jyotirmay Biswas, 2021. "Impact of Energy and Natural Resources Rent on FDI: An Analysis through POLS, DK, 2SLS and GMM Models," Energy Economics Letters, Asian Economic and Social Society, vol. 8(2), pages 122-133, December.
    5. Lau, Lin-Sea & Choong, Chee-Keong & Eng, Yoke-Kee, 2014. "Investigation of the environmental Kuznets curve for carbon emissions in Malaysia: Do foreign direct investment and trade matter?," Energy Policy, Elsevier, vol. 68(C), pages 490-497.
    6. Ojewumi, Sunday Johnson & Akinlo, Anthony Enisan, 2017. "Foreign Direct Investment, Economic Growth and Environmental Quality in SubSaharan Africa: A Dynamic Model Analysis," African Journal of Economic Review, African Journal of Economic Review, vol. 5(1), January.
    7. Ahmed, Khalid & Rehman, Mujeeb Ur & Ozturk, Ilhan, 2017. "What drives carbon dioxide emissions in the long-run? Evidence from selected South Asian Countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 1142-1153.
    8. Solomon Aboagye, 2017. "Economic Expansion and Environmental Sustainability Nexus in Ghana," African Development Review, African Development Bank, vol. 29(2), pages 155-168, June.
    9. Demena, Binyam Afewerk & Afesorgbor, Sylvanus Kwaku, 2020. "The effect of FDI on environmental emissions: Evidence from a meta-analysis," Energy Policy, Elsevier, vol. 138(C).
    10. Caner Demir & Raif Cergibozan & Ali Ari, 2020. "Environmental dimension of innovation: time series evidence from Turkey," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 22(3), pages 2497-2516, March.
    11. Zhenghui Li & Hao Dong & Zimei Huang & Pierre Failler, 2019. "Impact of Foreign Direct Investment on Environmental Performance," Sustainability, MDPI, vol. 11(13), pages 1-16, June.
    12. Kais, Saidi & Sami, Hammami, 2016. "An econometric study of the impact of economic growth and energy use on carbon emissions: Panel data evidence from fifty eight countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 1101-1110.
    13. Shahbaz, Muhammad & Balsalobre-Lorente, Daniel & Sinha, Avik, 2019. "Foreign Direct Investment–CO2 Emissions Nexus in Middle East and North African countries: Importance of Biomass Energy Consumption," MPRA Paper 91729, University Library of Munich, Germany, revised 19 Jan 2019.
    14. Chakamera, Chengete & Alagidede, Paul, 2018. "Electricity crisis and the effect of CO2 emissions on infrastructure-growth nexus in Sub Saharan Africa," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 945-958.
    15. Wajdi Bardi & Mohamed Ali Hfaiedh, 2021. "Causal Interaction between FDI, Corruption and Environmental Quality in the MENA Region," Economies, MDPI, vol. 9(1), pages 1-12, February.
    16. Baek, Jungho & Kim, Hyun Seok, 2013. "Is economic growth good or bad for the environment? Empirical evidence from Korea," Energy Economics, Elsevier, vol. 36(C), pages 744-749.
    17. Jungho Baek & Yoon Jung Choi, 2017. "Does Foreign Direct Investment Harm the Environment in Developing Countries? Dynamic Panel Analysis of Latin American Countries," Economies, MDPI, vol. 5(4), pages 1-8, October.
    18. Muhammad Shahbaz & Samia Nasreen & Talat Afza, 2014. "Environmental Consequences of Economic Growth and Foreign Direct Investment: Evidence from Panel Data Analysis," Bulletin of Energy Economics (BEE), The Economics and Social Development Organization (TESDO), vol. 2(2), pages 14-27, June.
    19. Baek, Jungho, 2016. "A new look at the FDI–income–energy–environment nexus: Dynamic panel data analysis of ASEAN," Energy Policy, Elsevier, vol. 91(C), pages 22-27.

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    More about this item

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics


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