Economic openness and green GDP

Abstract

Since the early 1990s there have been several attempts to develop national income accounting systems which recognize the negative impacts of environmental degradation and income inequalities on economic welfare. Collectively, these “green” gross domestic product (GDP) studies have generated a wealth of new time series data sets which can be used to reexamine the links between GDP and a host of factors commonly included in traditional economic growth models. In this paper, we develop models of green GDP growth and the gap between traditional and green GDP by using a panel data set from eight countries spanning 30–50 years. In both the growth and gap models, the effects of economic openness are tested. We find strong and robust results suggesting a negative nonlinear correlation between openness and green GDP growth and a positive nonlinear correlation between openness and growth of the gap between traditional and green GDP. While green GDP accounting systems are still in their infancy, our paper nonetheless implies that once these more comprehensive measures are fully developed, empirical models which explore factors contributing to the growth of economic welfare over time should be reexamined.