Abstract
Air pollution has an important impact on both human health and sustainable economic development. The relationship of the current account, which is an important carrier of international economic activity, with air pollution has rarely been discussed by scholars. This paper aims to investigate how air pollution affects the current account and the mechanism of this effect. We conducted a theoretical analysis of the relationship between air pollution and the current account by adopting an extended form of the life-cycle model. Then, we used panel data (2000–2017) from 159 countries and the panel double fixed-effect method to empirically test the theoretical outcomes. We found that an increase in the degree of air pollution in a country leads to the deterioration of the domestic current account. In addition, air pollution changes the current account by affecting the demographic structure, following the “air pollution→demographic structure→current account” mechanism. The study also tested the robustness of the benchmark results by solving endogeneity problems, subsample regression and controlling measurement errors. Our findings are an important expansion and innovation for the research about the current account and have important implications for external economic equilibrium and sustainable economic development.
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Notes
The WDI database is called the “World Development Indicators” database. It is the database that is compiled and organized by the World Bank on various economic and social development indicators of countries and regions around the world. The database basically contains all the economic and social development variables of each country. It is also one of the databases that scholars often use to study transnational issues. https://datacatalog.worldbank.org/dataset/world-development-indicators.
The trend interpolation method in this paper was used to measure the annual average change in the missing year plus the value of the previous year. The annual average change in the missing year was based on difference between the year before the missing first year and the year after the missing last year divided by the total missing years.
The countries with negative total credit in financial institutions include Algeria, Angola, Botswana, Congo, Iraq, Lesotho, Libya and Saudi Arabia, and there are smaller years in which the total credit in financial institutions is negative in Algeria, Angola and Saudi Arabia than other countries.
This is because 10 is the VIF’s threshold; no VIF values exceed 10 (see Appendix).
We thank an anonymous referee for pointing this out.
The double deficit refers to an economic phenomenon in which both the fiscal deficit and the current account deficit exist simultaneously.
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Funding
This paper received support from the National Social Science Fund General Project (Grant No. 19BJL131), Ministry of Education the base project (Grant No. 17JJD790024) and the Ministry of Education’s “Innovation Team Development Plan” rolling support project (Grant No. IRT_17R52).
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J.W. designed the article structure and drafted the manuscript. Y.P. provided extensive revisions on the manuscript. J.L. analyzed the data and drafted the manuscript.
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Appendix. The appendix is a supplement for main body of the study by some tables
Appendix. The appendix is a supplement for main body of the study by some tables
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Wu, J., Pu, Y. & Li, J. Air pollution, demographic structure, and the current account: an extended life-cycle model. Environ Sci Pollut Res 27, 26350–26366 (2020). https://doi.org/10.1007/s11356-020-08871-5
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DOI: https://doi.org/10.1007/s11356-020-08871-5