Nexus of Economic Growth, Economic Structure, and Environmental Pollution: Using a Novel Machine Learning Approach

The economy and environment still show complicated relationships, which have generated various and conflicting hypotheses. This study aims to propose a new perspective on the connection between economy and environment across 164 countries using an innovative clustering method, including Principal Components Analysis (PCA) and a machine learning approach. The outcome introduces three clusters of countries with similar economic and environmental characteristics. Cluster 1 constitutes countries with the highest levels of economic development and environmental quality. They include Luxembourg, Switzerland, Ireland, Norway, Singapore, the US, and Australia. Cluster 2 involves countries with less than the highest levels of economic development and environmental quality, covering the right side of the Environmental Kuznets Hypothesis (EKH) and the Pollution Halo Hypothesis (PHH-Halo). These include Qatar, Denmark, Iceland, The Netherlands, Austria, the UK, Germany, UAE, New Zealand, and Israel. Finally, the lowest development levels of economic and environmental development are apparent in the countries in Cluster 3, indicating the left side of the EKH and the Pollution Haven Hypothesis (PHH-Haven). This finding gathers the three hypotheses of EKH, PHH-Halo, and Haven in one unique framework of the economy–environment nexus.