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Influence of economic growth on environmental pollution in South Asia: a panel cointegration analysis

Abstract

Economic growth brings fortune to a society, but it worsens the ecosystem and results in environmental pollution through carbon dioxide (CO2) emissions. Despite extensive literature, the impact of economic growth on the environment is inconclusive, and the application of the environmental Kuznets Curve (EKC) hypothesis in the case of South Asia is very limited. This study investigated the validity of the EKC hypothesis for South Asia, examining the influence of economic growth on CO2 emissions by incorporating industrial value added (IVA), energy consumption (ENC), and urbanization as control variables. Using annual panel data on selected South Asian economies for the period of 1971–2018, this study applied the pooled mean group and fully modified OLS estimators, and the Dumitrescu–Hurlin panel causality test to accomplish our objective. The findings revealed that economic growth, ENC, and urbanization have significant impacts on environmental pollution in South Asia. Economic growth initially adversely affects the environment, but when GDP attains a certain threshold it takes an inverse turn supported by a negative value of squared GDP, then economic growth becomes a friend of the environment. Both urbanization and ENC add to environmental pollution, and IVA is pollution-neutral. The Dumitrescu–Hurlin panel causality also reveals that economic growth, squared GDP, urbanization, and ENC contribute to CO2 emissions. The outcomes possess implications for policymakers to increase the share of renewable energy sources in the energy mix, and emphasize rural–urban development and pollution-neutral safe production techniques to reduce environmental pollution for the region over the long run.

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Availability of data and materials

The data are available at the World Bank website at: http://databank.worldbank.org

Notes

  1. 1.

    The eight countries of SAARC include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.

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Correspondence to Md. Saiful Islam.

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Islam, M.S. Influence of economic growth on environmental pollution in South Asia: a panel cointegration analysis. Asia-Pac J Reg Sci (2021). https://doi.org/10.1007/s41685-021-00208-5

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Keywords

  • EKC hypothesis
  • CO2 emissions
  • Economic growth
  • Energy consumption
  • Industrial value added
  • Urbanization
  • South Asia

JEL Classification

  • O53
  • O44
  • O18
  • Q53
  • Q43
  • R11