Impacts of human capital, exports, economic growth and energy consumption on CO2 emissions of a cross-sectionally dependent panel: Evidence from the newly industrialized countries (NICs)

Abstract

Environmental problem is a great concern world-wide which has been researched from various angles, including via the environmental Kuznets curve (EKC) hypothesis. EKC shows a hypothesized inverted U-shaped relationship between economic growth and environmental quality. As the severity of problem grows with industrial activities, this paper explores the impacts of economic growth, energy use, exports and human capital on the environmental quality of newly industrialised countries (NICs) over the period of 1979−2017. We have considered the cross-sectional dependence (CSD) issue, often ignored by most of the panel data studies. Using panel cointegration estimation technique, we have applied Dynamic Ordinary Least Squares (DOLS), Fully Modified Ordinary Least Squares (FMOLS), and Pooled Mean Group (PMG) estimation methods that address the CSD problem. Our findings exhibit the existence of CSD and long-run nexus among the variables used. In the long run, economic growth and human capital improved, and energy consumption and exports deteriorated environmental quality. The long-run elasticity for the energy variable is around one. DOLS and PMG methods provide similar results exhibiting that the effect of economic growth on CO2 emissions is the highest followed by energy use, human capital, and exports. The study found no evidence of the presence of the EKC hypothesis in NICs. Policy suggestions are made based on the findings.