Environmental Kuznets Curve (EKC): A Manual

149 Pages·2019·3.928 MB·English

by  Burcu Özcan (editor), Ilhan Öztürk (editor)

Environmental
Kuznets Curve (EKC)
A Manual
Edited by
BURCU ÖZCAN
Professor
Faculty of Economics and Administrative Sciences
Firat University
Elazig, Turkey
ILHAN ÖZTÜRK
Professor
Faculty of Economics and Administrative Sciences
Cag University
Mersin, Turkey
]
ENVIRONMENTALKUZNETSCURVE(EKC) ISBN:978-0-12-816797-7
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List of Contributors
BuketAltinoz, PhDcandidate Faik Bilgili,PhD
Department ofEconomics Professor
NevsehirHaci BektasVeli University Economics
Nevsehir,Turkey FEAS
ErciyesUniversity
NicholasApergis, PhD Talas-Melikgazi
Professor Kayseri,Turkey
Banking&FinancialManagement
UniversityofPiraeus Siew-PongCheah
Piraeus, Attica,Greece Universiti TunkuAbdulRahman
ResearchProfessor Kampar,Perak,Malaysia
Economics andFinance
Chee-Keong Choong
UniversityofDerby
Universiti TunkuAbdulRahman
Derby,UnitedKingdom
Kampar,Perak,Malaysia
AlperAslan,PhD
EyupDogan
Professor
Department ofAviationManagement AssociateProfessor
Department ofEconomics
ErciyesUniversity
AbdullahGülUniversity
Kayseri,Turkey
Kayseri,Turkey
H.HilalBag(cid:1)lıtas¸,PhD
PelinGençog(cid:1)lu,PhD
Economics
FEAS Economics
SSI
ErciyesUniversity
ErciyesUniversity
Talas-Melikgazi,Kayseri,Turkey
Talas-Melikgazi, Kayseri,Turkey
DanielBalsalobre,PhD
RoulaInglesi-Lotz,PhD
FacultyofSocialSciences
AssociateProfessor
Department ofPolitical EconomyandPublicFinance
EconomicandBusinessStatisticsandEconomicPolicy Department ofEconomics
UniversityofPretoria
UniversityofCastilla-La Mancha
Pretoria, SouthAfrica
Cuenca,Spain
AbdulJalil, PhD
MitaBhattacharya,PhD
Professor ofEconomics
SeniorLecturer
Department ofEconomics PakistanInstitute ofDevelopmentEconomics
Quaid-i-azam University
MonashBusiness School
Caulfield,Australia Islamabad, Pakistan
v
vi LISTOFCONTRIBUTORS
EmrahKoçak,PhD NasirHamidRao,MPhilScholar
AssociateProfessor PakistanInstitute ofDevelopmentEconomics
Economics Islamabad,Pakistan
ErciyesUniversity
Kayseri,Turkey MuhammadShahbaz,PhD
Professor
SevdaKus¸kaya,PhD EnergyandSustainableDevelopment
Economics Montpellier BusinessSchool
SSI Montpellier,France
ErciyesUniversity COMSATSUniversityIslamabad
Talas-Melikgazi LahoreCampus
Kayseri,Turkey Pakistan
Lin-SeaLau,PhD AvikSinha,FPM
AssistantProfessor Department ofGeneral Managementand
UniversitiTunkuAbdulRahman Economics
Kampar,Perak,Malaysia GoaInstituteof Management
India
ErhanMug(cid:1)alog(cid:1)lu,PhD
Economics RecepUlucak,PhD
FBA AssociateProfessor
AbdullahGülUniversity Economics
Kocasinan,Kayseri,Turkey ErciyesUniversity
Kayseri,Turkey
Cheong-FattNg
UniversitiTunkuAbdulRahman AliGökhanYücel,PhD
Kampar,Perak,Malaysia ErciyesUniversity
Economics
BurcuÖzcan
FacultyofEconomics andAdministrativeSciences
Professor Kayseri,Turkey
FacultyofEconomicsandAdministrative Sciences
FiratUniversity
Elazig,Turkey
IlhanÖztürk
Professor
CagUniversity
FacultyofEconomicsandAdministrative Sciences
Mersin,Turkey
Preface
This book contains everything that students and startslessening,afterthehumanbeingshaveconsumed
researchers need to know about the environmental theessentialmaterialforitsinitialsurvivalandprogress.
Kuznets curve, theory, and practice. Well-established Itisasifhumanbeingshavebeengrantedaloanfrom
academicians and researchers have united their knowl- MotherNatureandwhenthetimecomes,theyhaveto
edge expertise to provide this highly updated volume payitback.TheenvironmentalKuznetscurvetheorycan
which constitutes an indispensable book belonging to be very informative for the reversal of every possible
the bookshelf of everyone who is fond and fascinated externalityapplicableineconomies.
withtheinvestigationofthisverbosetheory. Thiscollectivevolumeoffersatoolfortheeconomics
The environmental Kuznets curve is regarded as a and the econometrics of this emblematic theory. The
statistical artifact that summarizes aspects of collective economicspartoffersacomprehensiveoverviewofthe
humanbehaviorintermsofenvironmentalpressureand historyandoriginofthistheory,itsearlyandmostrecent
sustainabledevelopment.Sincetheinaugurationofthis studies,aseparationofsingleandmultiplecountryap-
discussion with Kuznets who had hypothesized an plications, policy landmarks, and the particular contri-
invertedU-curverelationshipbetweeneconomicdevel- bution of renewable energy to the solution of many
opmentandhumaninequality,numerousstudieshave energy resource exploitation problems. On the other
been spawned, each employing different variables, hand, the econometrics part handles questions about
methods, and research contexts, with the first one data selection problems, time series, and panel series
generatedbyGrossmanandKruger.Afterthe1990sthe handling advice as well as the most cutting-edge
relationship has come to the foreground of environ- econometricmethodsapplicableinthisfield.
mental and resource economics (not least energy eco- IamhonoredtoprovideaprefaceofthisbookandI
nomics) postulating that the first stages of economic amsureitwillattractmajorreadership.Ihopeyouenjoy
growth are characterized by increased exploitation of readingitasmuchasIhave.
resources and the consequent contamination of the
planet, but after a threshold level, environmental AngelikiN.Menegaki
degradation will start declining through technological AgriculturalUniversityofAthens,Athens,Greece
andinstitutionaladvancement. OpenUniversityofCyprus,Nicosia,Cyprus
Researchinthefield,amongotherthings,estimates
the crucial point where pressure to the environment
vii
Introduction
Wehavebeenwitnessingvariousenvironmentalthreats economics. We aim to review both the theoretic and
such as global warming, climate change, flood, the empirical dimensions of the EKC subject by
drought,waterscarcity,andsoonsincetheindustriali- analyzing the studies in the existing literature. The
zation age. In this respect, industrialization caused bookisaconstructivesynthesisofknowledgeandexpe-
environmentalpollutionalongwitheconomicgrowth. rience from the experts who are internationally recog-
Mechanizationraisedtheproduction(output)levelsof nized for their work and contribution into the EKC
countries; however, it also damaged our habitat by literature. The book includes four main parts with
increasing greenhouse gas emissions rates and ecolog- severalchapters.
icalfootprintlevel,bycausingwaterpollutionandscar- Part1:Introduction
city, and so on. Those environmental problems could Chapter1.AHistoricalPerspectiveonEnvironmental
be evaluated as the side effects of economic develop- KuznetsCurve
ment process. As will be discussed in the following The chapter written by Prof. Burcu Ozcan and
subheading,scholarsstartedinterrogatingtheenviron- Prof. Ilhan Ozturk provides a historic perspective on
mental effects of economic development process. global environmental concerns raising over time. The
Currently,twoessentialquestionsneedtobeanswered: “limits to growth” report, the Brundtland Report,
Does economic growth aggravate environmental the sustainable development notion, and the EKC are
destruction? Alternatively, does economic growth the essential notions emphasized in the chapter. In
amelioratethisdestructionwitheco-friendlytechnologic particular, this chapter focuses on the emergence of
improvements,thatis,green-technologyproducts? the EKC concept and the reasons behind the inverted
InspiredbySimonKuznets(1955),whoexplained U-shapedcurve.
the relationship between income inequality and eco- Part2:TheEnvironmentalKuznetsCurveLiterature
nomicgrowthwithaninvertedU-shapedcurve,Gross- Chapter2.TheEnvironmentalKuznetsCurve:ACrit-
manandKrueger(1991)analyzedthelinkagebetween icalReviewofEarlierLiterature
environmental pollution and economic growth. They Inthischapter,Dr.MitaBhattacharyacriticallyana-
assertedthatintheearlystagesofdevelopment,envi- lyses the earlier empirical studies between 1991 and
ronmentalpollutionfirstincreasesalongsidetherising 2006withinthe EKCliterature. Thechapterhighlights
per capita income level. However, this trend turns themajorfindingsfromtheliteratureandindicatesthe
reverse in the later stages of development process, limitationsoftheseearlystudies.Shealsoexplainsthe
that is, environmental pollution level starts going keyreasonsbehindtheEKC,includingincomeelasticity
downwhilepercapitaincomelevelgoesup.Thereby, of environmental quality demand, scale, technologic,
the traditional environmental Kuznets curve (EKC), andcompositioneffects.
whichassumesaninvertedU-shapedrelationshipbe- Chapter 3. Recent Studies (Extending Basic Environ-
tween pollution and growth, has emerged. After that, mentalKuznetsCurveModelbyAddingMoreVariables)
several applied researchers questioned its validity for Prof. Roula Inglesi-Lotz discusses the recent EKC
different countries, but they did not come to the studies in the literature that extend the bivariate EKC
sameconclusionbecauseofthedifferencesintheeco- modelwithadditionalvariablessuchastourism,finan-
nomic development levels and the economic struc- cial development, international trade, urbanization,
turesofcountries. and so on. The discussion evolves around the role
Based on the interrelated natures of the economy that these factors play in the traditional bivariate EKC
andenvironment,thisbookdealswiththespecifictopic context and summarizes general findings of recent
entitled “the EKC” in the discipline of environmental studies.
ix
x INTRODUCTION
Chapter 4. Single-Country Versus Multiple-Country Chapter8.Time-SeriesAnalysis(Stationarity,Cointe-
Studies gration,andCausality)
This chapter prepared by Prof. Alper Aslan, Assoc. This chapter written by Prof. Abdul Jalil and Nasir
Prof.EyupDogan,andBuketAltınozprovidesanexten- HamidRaofocusesontheissuesoftime-seriesanalysis
siveliteraturereviewclassifiedaccordingtotheircounty suchasspuriousregression,stationarity,unitrootwith
samples, that is, the single-country studies versus the and without structural breaks, and cointegration with
multiple-country studies. They also explain the results and without structural breaks in the framework of the
and the methodologies of the studies along with EKC issue. They also provide some examples using
their samples and time periods. The authors state that thesemethodsfromtheliterature.Theysuggestthatre-
the EKC hypothesis has a long history and is still up searchers who test the EKC hypothesis in the country
todate. cases should apply the newly developed time-series
Chapter5.TheProcessofSustainability:FromPastto methodologies.
Present Chapter9.PanelDataAnalysis(Stationarity,Cointe-
In this chapter, Assoc. Prof Recep Ulucak, Dr. Ali gration,andCausality)
Gokhan Yucel, and Assoc. Prof. Emrah Kocak review In this chapter, Assist. Prof. Dr. Lau Lin-Sea, Ng
the international efforts on the process of sustainable Cheong-Fatt, Cheah Siew-Pong, and Prof. Choong
development and environmental awareness by discus- Chee-Keong summarize both the conventional and
sing alternative recommendations. The crucial world contemporary panel data estimation techniques (e.g.,
environmentalsummits and conferences, for example, unit root tests, cointegration tests, causality tests, and
theStockholmConference,Rio(Earth)Summit,Kyoto long-runestimators)usedintheanalysisoftheEKChy-
Protocol,WorldSummitonSustainableDevelopment, pothesis.Theystatethatpreviousstudiesontherelation-
and Paris conference, are discussed. The authors also ship between pollution and economic growth have
offersomealternativepolicyrecommendationstosolve reached consistent or conflicting findings due to
environmentalproblems. different estimation techniques. They argue that re-
Chapter6.RenewableEnergyandItsFinanceasaSo- searchers have been able to provide justifications in
lutiontotheEnvironmentalDegradation explainingandpredictingtheEKCphenomenonbyus-
Prof.NicholasApergissuggestsrenewableenergyas ing the recently advanced panel data analyses such as
a solution to the environmental pollution problems. Common Correlated Effect Mean Group (CCEMG)
In this chapter, he explains some of the main topics and Augmented Mean Group (AMG). They cite from
regarding energy finance in the field of renewable en- theEKCstudiesusingpaneldatamodels,aswell.
ergyanddocumentsthe“direction”ofinnovationthat Chapter 10. Most Up-to-Date Methodologic Ap-
financialactorscreate. proaches:EvidencefromtheWaveletCoherenceApproach.
Part 3: The Econometrics of the Environmental Kuz- Prof. Faik Bilgili, Dr. Erhan Mugaloglu, Dr. Sevda
netsCurveStudies Kuskaya,H.HilalBaglıtas,andDr.PelinGencoglupre-
Chapter7.DataSelectionandEnvironmentalKuznets pared this chapter. They assert that mathematical cali-
Curve Models - Environmental Kuznets Curve Models, brations, or time series and/or panel data estimations
DataChoice,DataSources,MissingData,Balancedand for EKC, in general, obtain the parameter estimations
UnbalancedPanels thatdonotchangewithinthesampleperiod.Theysug-
Dr.AvikSinha,Prof.MuhammadShahbaz,andDr. gestusingwaveletcoherenceapproachasanovelanda
DanielBalsalobrepreparedthischapter.Theempirical different methodology to examinethe EKCbyconsid-
partoftheEKCstudieswasintroducedinthischapter. eringallpossibleshifts(structuralbreaks)inestimated
They discuss crucial issues such as model selection, parameters.Theyalsoprovideanempiricalstudybased
model validation, data standardization, variable selec- onthismethodologyfortheUSeconomy.
tionandcreation,andproxyforenvironmentaldegra- Part4:Conclusion.
dation. While discussing these issues in brief, they Editors Prof. Ilhan Ozturk and Prof. Burcu Ozcan
also provide basic solutions to these problems both write this part. They provide general knowledge about
logicallyandempirically. thebookandsummarizeitscontent.
PART I INTRODUCTION
CHAPTER 1
A Historical Perspective on
Environmental Kuznets Curve
BURCUÖZCAN (cid:129) ILHANÖZTÜRK
A HISTORICALPERSPECTIVE ON problems.Forthe21stcenturywearecurrentlyin,hu-
ENVIRONMENTALKUZNETS CURVE manity has been witnessing some rising serious
The close reciprocal linkage between environmental environmental disasters, such as flood, drought,
performance and economic development is of great melting of glaciers, global warming, and so on, which
importance and became a crucial subject of interest aretheresultsofincreasingpressureofhumanactivities
for too long. Regarding the economic impacts of onthenature.Becauseoftheenvironmentalstressand
environment, environmental quality may affect eco- pressure stemming from the human activities, the
nomic development through some channels. For ecologic footprint level of each country increases as
instance, affecting the productivity level of labor, that well. In other words, the ecologic footprint of human
is,thehealthconditionsofworkers,environmentmay being,whichisthetotalareanecessarytoproducethe
have influences on the national human capital stock, resourcesitconsumesandtoabsorbthewasteitgener-
whichisthecriticalinputforthedevelopmentprocess. atesbasedonprevailingtechnology(Bagliani,Bravo,&
In this respect, Grossman and Krueger (1995, p. 355) Dalmazzone, 2008), has surpassed the Earth’s bio-
arguethat“ourlivesareaffectedbytheairwebreathe, capacity, thatis the amount of biologically productive
the water we drink, the beauty we observe in nature, land and water areasavailable within the borders of a
and the diversity of species with which we come into givencountry(Moran,Wackernagel,Kitzes,Goldfinger,
contact.” This situation is an indication that environ- &Boutaud,2008).
mental quality has an undisputed importance for AccordingtotheGlobalFootprintNetwork(GFN)1,
human being. Besides, economic development also the Earth’s total biocapacity was 12.2billion gha2
has some effects on the environment; however, there (1.71gha per person), whereas the humanity’s
isnoanyunanimousideawhethereconomicdevelop- ecologic footprint was 20.6billion gha (2.87gha per
mentisafriendorafoetotheenvironmentalwelfare. person) in 2013. Thus, the Living Planet Report pre-
Therefore,researchersandscholarshavebeentryingto pared by the World Wide Fund for Nature (World
findanswertothequestionwhethereconomicdevelop- Wide Fund for Nature (WWF), 2016) estimates that
ment can be used as a solution for the environmental humanity currently needs the regenerative capacity of
problems. 1.6 Earths to provide the goods and services we
Particularly, since the industrialization era, because consumeeachyear.Inthisrespect,anumberofcoun-
oftherisingpublicconcernsoverenvironmentalissues tries are moving from ecologic creditors to ecologic
and the deterioration of environmental quality debtors,aphenomenonthatultimatelymanifestsitself
worldwide, scientists started searching for the reasons in global overshoot3 (Wackernagel, Monfreda, Erb,
and solutions of the environmental degradation Haberl, & Schulz, 2004). For instance, growing water
problems. For instance, global warming is accepted as
a by-product of excessive consumption of fossil fuels
1Seehttps://www.footprintnetwork.org/.
by humans after the industrial revolution in the mid- 2Globalhectares.
18th century (Uchiyama, 2016), and countries have 3Overshootingindicatesthesituationinwhichtotaldemand
been struggling to curb the greenhouse gas emission forecologicalgoodsandservicesexceedstheavailablesupply
levels against global warming and climate change foragivenlocation(GFN,2010).
EnvironmentalKuznetsCurve(EKC).https://doi.org/10.1016/B978-0-12-816797-7.00001-1
Copyright©2019ElsevierInc.Allrightsreserved. 1
2 PARTI Introduction
shortages, desertification, erosion, reduced cropland They asserted that economic growth would be pre-
productivity, overgrazing, deforestation, rapid extinc- ventedasaresultoffiniteenvironmentalresourcestock
tionofspecies,collapseoffisheries,andglobalclimate andthat a steady-state economywith zerogrowth is a
changearetheconsequencesofecologicovershoot.4In requirement to avoid the upcoming dramatic ecologic
thisrespect,asstatedbyGallietal.(2012),thiscentury scenarios (Dinda, 2004). Therefore, they warned that
willbeshapedbyglobalovershoot,whichwillbecome patternsofproductionhadtobechangedfromquantity
increasinglyevidentindailylifeincasethatthetrend toquality;otherwise,itwouldbeimpossibletosatisfy
of increasing human pressure do not reverse. There- the infinite needs of humanity (Ginevicius et al.,
fore, understanding the mechanism driving environ- 2017). Stressing theimportance of theworld’slimited
mental problems is crucial to correctly assess the natural resource endowments, they advocated that
need and the usefulness of environmental policies world would be better off limiting its growth as
becausethecarryingcapacityoftheearthmaybesur- opposed to continuing to reach for maximum growth
passedsoonerthanwethink(Urheim,2009). inthelong-run(Urheim,2009).
Even though we are living in a century accelerating Inthecourseoftime,therehappenedsomeserious
environmental threats and catastrophes as explained eventssuchastheoilcrisesinthe1970sconfirmingthe
above, the concerns about environmental degradation ideassupportedbytheClubofRome.Oilpricesmade
and natural resource depletion date back to the 18th peakbecauseofoilshortageandresultedintheworld
century, the age of industrialization. For instance, in energy crisis. After the oil crises, there were only few
1798,ThomasR.MalthuspublishedabookdAnEssay who questioned the view that the world was entering
on the Principle of Populationdin whichhe assumed a future of rising scarcity of energy and natural re-
thatfoodsupplygrewarithmeticallywhilepopulation sources(Tahvonen,2000).However,thoughthispessi-
grew geometrically, and thus the world would be in mistic atmosphere, during the 1970s, some empirical
miserybecauseofthepressureofincreasingpopulation studies supported that the ratio of consumption of
on the food supply. This situation was called the somemetalstoincomewasdeclininginthedeveloped
Malthusian Population Trap Theory where long-run economies, which conflicted with the predictions
human progress would be very dim (Ginevicius, introduced in the Limits to Growth Report (Mal-
Lapinskiene,&Peleckis,2017).Thetheoryemphasized enbaum,1978).Owingtopositiveornegativeenviron-
thepresenceofastageatwhichthefoodsupplyisinad- mentaldevelopments,TheUnitedNationsConference
equateforfeedingthepopulationgiventhatpopulation ontheHumanEnvironment,alsoknownastheStock-
growthisaheadofagriculturalgrowth.TheMalthusian holm Conference, was held in Stockholm, Sweden
pessimism continued in the 20th century as well. For fromJune5to16,1972.Itwasthefirstmajorconfer-
instance,in1972,aninternationalteamofresearchers ence of theUnited Nations on the international envi-
from the Massachusetts Institute of Technology ronmental issues and marked a turning point in the
publishedthe“LimitstoGrowth”reportfortheClubof development of international environmental
Rome. They drew highly pessimistic scenario for the awareness.5
futureoftheworldandunderlined therealitythatthe In the 1980s, humanity witnessed much progress
rates of population growth, usage of resources, pollu- andmanyimprovementsinthescienceandtechnology
tion increase, and material consumption would first fields that eliminate the pessimistic considerations
grow exponentially but then collapse during the next about the environment and natural resource endow-
century (Ekin, 1993; Tahvonen, 2000). The reason of ments. For instance, economics discipline introduced
thecollapseisthelimitsthatworldeconomywilllikely aneweconomicgrowththeory,namedas“theendoge-
reach in terms of nonrenewable resources, agricultural nous growth theory,” which assumes that technologic
production, and excessive pollution. Meadows, development is a continuous progress stemming from
Meadows,Randers,andBehrens(1972,p.23)empha- innovationsmadeinfirmsandcouldbesupportedby
sizedthelimitstogrowthasfollows: the governments research and development invest-
ments and expenditures (see, inter alia, Grossman &
Ifthepresentgrowthtrendsinworldpopulation,industrial-
Helpman, 1991; Lucas, 1988; Romer, 1986). Thus,
ization,pollution,foodproduction,andresourcedepletion
technologic development that produces eco-friendly
continueunchanged,thelimitstogrowthonthisplanetwill
bereachedsometimewithinthenextonehundredyears. technologic devices was accepted as a remedy for the
4See https://www.wwf.at/de/view/files/download/showDown 5Seehttps://sustainabledevelopment.un.org/milestones/human
load/?tool¼12&feld¼download&sprach_connect¼1814. environment.