Interactions between economic growth and environmental quality: panel and non-panel analyses

Abstract

We conduct empirical analyses on the relationship between environmental quality and income levels in three income groups, i.e. high, middle and low income economies for the periods of 1970 to 2008. Two approaches i.e. panel and non-panel data analyses are applied in examining the existence of two-way inter-relationship of environmental quality and income levels. Apart from this, the study also seeks to reveal the determinants that affect the inter-relationship of these two variables. The control variables to be tested include trade, foreign direct investment (FDI), population density, inflation, agricultural land and labour participation rate. Our results (both panel and non-panel) reveal no or low interaction between environmental quality (proxy by CO 2 emissions) and income (proxy by GDP). The control variables have different impacts on growth and environmental degradation across economies. Trade and inflation have small or non significance impact on the two variables across economies. FDI can have negative effect on environmental quality in middle and low income economies. Population density and labour participation rate can have negative effect on emissions of carbon dioxide in low and middle income economies respectively.